MALAYSIA’S ringgit is poised for a reprieve after its worst monthly performance since late 2016 as China’s reopening heralds more tourist arrivals and bolsters exports.

DBS Group Holdings, Barclays and RBC Capital Markets all see the ringgit staying around the current level of 4.45 by the end of June this year. Fears that the US Federal Reserve may prove hawkish for longer ended up hammering emerging markets last month, driving a 4.8 per cent slide in the ringgit versus the greenback before sentiment stabilised in recent days.

“The impact of China’s reopening in terms of tourism arrivals and trade will be felt more keenly by the middle of the year, helping support the ringgit,” said Alvin Tan, the head of Asia FX strategy at RBC in Singapore. “Plus, pressure on emerging-market currencies will ease as the Federal Reserve inches closer to the end of its rate-hike cycle.”

China’s economic rebound is set to boost the outlook for Asian currencies this year, with the ringgit also seen as a beneficiary from Malaysia’s strong trade links to the world’s second-largest economy.

China was Malaysia’s biggest export destination before the pandemic and even as its share has fallen since then, it still stood at US$47 billion last year, about 14 per cent of the total.

There is also potential for a rebound in tourist arrivals from China after the nation dismantled strict Covid-19 curbs in January. Malaysia attracted 108,067 Chinese tourists from January-September last year compared with 3.1 million in 2019.

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Bank Negara Malaysia’s (BNM) policy decision on Thursday (Mar 9) will also be on the radar for currency traders. A Bloomberg survey of 16 analysts so far shows nine expecting the central bank to hold rates at 2.75 per cent for a second consecutive meeting. The rest see a quarter-point hike.

Fed advantage

HSBC is predicting bigger gains for the ringgit as the prospect of the Fed reaching the end of its tightening cycle is set to end the dominance of the US dollar. Traders are pricing the peak of US rates to happen in September.

“The ringgit is very sensitive to the broad dollar movement,” said Paul Mackel, the global head of foreign-exchange research at HSBC in Hong Kong, which forecasts the ringgit at 4.28 by the end of June. “The combination of a solid external position, potential for stronger capital inflows could also help the ringgit.”

The central bank has also increased its ability to defend the currency from volatility as foreign reserves rebounded from a two-year low reached last October. The nation’s dollar stockpile has risen about 10 per cent since then to US$115 billion in January.

“BNM will lean against the move if the pressure on the currency is sustained,” said Ashish Agrawal, the head of foreign-exchange and emerging-market macro strategy research at Barclays in Singapore. “The narrative would be more like stability for the ringgit ahead after weakening sharply recently.” BLOOMBERG