KUALA LUMPUR: The ringgit lost 4.54 per cent to the US dollar last year but is set to trade higher this year after closing the last trading day of 2023 on a strong note.
Market observers expect the ringgit to end 2024 firmer at as much as 4.300 especially as the Federal Reserve is expected to cut rates, easing pressure on Malaysia to match the US central bank's move.
This will also be supported by execution of plans under the government's macro blueprints launched and fiscal discipline-cum-consolidation.
The ringgit closed last Friday 0.3 per cent higher to below the 4.60 level at 4.594, the highest level since last August.
Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said last Friday's performance may have been a consequence of year-end spending, something that is often observed.
"However, there is scope for an uptrend in the ringgit as the year progresses, perhaps in the second half of 2024. One can expect rate cuts from the Fed post-March 2024 which will ease the pressure on Malaysia to match what is happening in the US.
"The 2024 Budget initiatives will probably kick in in the second half of 2024," he told Business Times.
He added that there would also be improved fiscal conditions as the year progresses.
"The export cycle might swing up, depending on the semiconductor cycle.These factors, combined, can be expected to result in a stronger ringgit, closer to 4.50 against the US dollar," he said.
In October, the ringgit fell to 4.7775 against the greenback amid the escalation of conflict in the Middle East.
The same month also saw the local note reached an all-time low against the Singapore dollar after the latter surged to a new high of 3.5086 against the ringgit.
Maybank Investment Bank Bhd (Maybank IB) also viewed the ringgit to end firmer this year, at 4.400 against the greenback.
This will be supported by various government initiatives launched last year namely the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) 2030 as well as the mid-term review of the 12th Malaysia Plan.
Maybank IB noted that the ringgit's weakness and higher volatility against the greenback in 2023 had provided investors with trading opportunities, especially in glove stocks.
Its research team expects the US dollar index (DXY) to weaken by 3.2 per cent this year, amid expectations for slower economic growth in the developed markets and the likelihood of the Fed cutting interest rates.
"Over in Malaysia, execution of plans under the macro blueprints launched and fiscal discipline-cum-consolidation provide the backdrop for a firmer ringgit. As highlighted earlier, our FX research team expects the US/ringgit to end 2024 at 4.400 (up 6.8 per cent year-on-year versus 2023 estmate of 4.700)," it said.
Meanwhile, the Fed's decision to keep interest rates steady in the Federal Open Market Committee meeting in December on top of easing inflation opened the door to rate cuts next year.
Hong Leong Investment Bank Bhd (HLIB) said based on the projections released, most officials had pencilled in three cuts for 2024.
The firm maintained its projection for the ringgit to appreciate to RM4.30 against the US dollar by end-2024.
"This was after closing 2023 at RM4.59 against the dollar, within our forecast of RM4.60," HLIB noted.
