Malaysia’s ringgit is undervalued and is on course to strengthen: Affin Hwang

Malaysia ringgit notesMalaysia ringgit notes

Malaysia’s ringgit has risen steadily against the U.S. dollar since the second half of 2017 began, with more gains ahead, Affin Hwang said in a note on Friday.

It pointed to the liberalisation of the bond market and foreign-exchange hedging requirements in 2017 as spurring the ringgit higher, with the dollar/ringgit touching 3.87 in late January.

Affin Hwang, which has a tie-up with Daiwa, said it expected the compliance rate for converting foreign-currency export proceeds to ringgit to improve to around 55 percent in 2018, which would translate into a cumulative net conversion of around US$12 billion to US$13 billion for 2018. That would support demand for ringgit, Affin Hwang said.

It said it now expects the dollar/ringgit to trade between 3.90-3.95 throughout most of the first half of this year, adding the Malaysian currency may appreciate to push the pair to 3.80 by the end of 2018. It’s previous forecast was for dollar/ringgit at 4.05 by the end of the year.

That would be on support from steady, sustained economic growth in 2018 and expectations of higher oil prices and possibly monetary policy normalisation in the second half of the year, Affin Hwang said.

“Based on the real effective exchange rate (REER), Malaysia’s ringgit remains relatively undervalued,” Affin Hwang said.