Over the medium term, it continues to hold a positive view on the ringgit as narrowing yield differentials with the US and a relatively resilient growth outlook bode well for the local unit.
“Risks to our forecasts are skewed towards a weaker ringgit and hinge largely on the US Federal Reserve (Fed) interest rate trajectory and China’s growth,” it said in a commentary note.
Over a short-term six-month outlook, BMI said, the ringgit reversed its broad weakening trend since the start of 2024 to gain 12.1% in 3Q 2024, positioning it to be the best-performing emerging market currency in the region.
To account for the stronger-than-expected performance in 3Q 2024, BMI revised its forecast for the unit to average RM4.35 per US dollar, from RM4.55 per US dollar previously.
Technically, it said, the ringgit touched multi-year trendline resistance at RM4.20 per US dollar level on Sept 23.
“We see scope for the ringgit to touch the next resistance level at the RM4.00/US dollar by end-2024, although the relative strength index, which appears heavily oversold as things stand, could point to a short-term depreciation.
“Our forecast is somewhat more optimistic than Bloomberg’s consensus of RM4.30 per US dollar,” it said.
BMI also expects interest rate differentials between the US and Malaysia to narrow in favour of the ringgit.
It had previously expected the Fed to kick off its easing cycle with a 25 basis-point (bp) cut at its September meeting. The Fed opted for a 50bp cut that took the funds rate down to 5%.
“We now think the Fed will continue with its cutting cycle in the coming months, lowering its policy rate further by a further 75bp in 4Q 2024, compared with 50bp previously.
“This implies that narrowing yield differentials will be supportive of the ringgit particularly if we are right in expecting Bank Negara Malaysia to leave its OPR on hold at 3% through end-2024,” it said.
Beyond the six-month horizon, BMI forecast the ringgit to strengthen by 9% in 2025, reaching RM3.55 per US dollar by end-2025.
Accordingly, it has revised its forecast for the local unit to average RM3.80 per US dollar versus RM4.48 per US dollar previously.
The primary driver would be further policy loosening worth 125bp in 2025, which would take the Fed funds rate down to 3% by year end.
“In contrast, we expect BNM to remain on hold at 3% through end-2025,” it said.