The ringgit will likely strengthen to around RM4.25 against the US dollar next year on the back of improving commodity prices, says Maybank Investment Bank (Maybank IB) in a report.
The Malaysian currency has been considered to be extremely volatile over the past year and fundamentally undervalued.
But Maybank IB believes the weakness of the ringgit is temporary and will strengthen once oil prices stabilise, domestic demand continues to remain resilient and commodity prices see a turnaround.
The ringgit is about 20% undervalued to its fair value point estimate of RM3.65. The research house expects the ringgit to trade at the 4.2500 levels in the last quarter of the year.
The ringgit opened at 4.4295 yesterday and was traded at 4.4230 at 5pm from Wednesday’s close of 4.4323.
The stronger performance was led by earlier expectations that the European Central Bank would extend its asset purchase programme at its meeting yesterday.
In the case of the US Federal Reserve (Fed), which will hold its policy meeting next week, market expectations are for a hike in the interest rate.
Maybank IB expects to see medium-term value for the ringgit next year. English-language daily New Straits Times quoted Maybank IB chief economist Suhaimi Ilias as saying that the ringgit would appreciate to 4.25 by the end of this year, appreciate steadily to 4.15 in the coming first quarter and ending next year at 4.15.
A higher US dollar versus the ringgit is expected in the second and fourth quarters of next year due to the expectation of Fed rate hikes, he said.