KUALA LUMPUR: With signs of improving US macro fundamentals, aggressive quantitative easing (QE) and low policy rates, the US dollar is expected to weaken in 2013, to the benefit of the ringgit and other regional currencies, according to currency strategists.
“We take a non-consensus stance the US dollar will resume its weakening bias in 2013 on three counts. First, we take a view that improving macro fundamental in 2013 as households are paring down debts, healthier labour market conditions and sustained lift of asset values, particularly residential property, will not drive a stronger US dollar,” Wong Chee Seng, foreign exchange strategist at AmBank Group, said in a report on Monday.
Wong added that a far more aggressive QE4 will be a driver for more highly favourable liquidity and financial conditions in the US, which will also have a depressive effect on the greenback.
“Third, the US Federal Reserve’s commitment to keep policy rate at historic lows at least until the first half of 2015 will add further pressure to search for better yields somewhere outside the US,” he said.
This search by investors for better yields outside the US will be a plus for Asian currencies, including the ringgit which, Wong expects, will appreciate in the first half of 2013.
“I think for the first half of 2013, the ringgit will be under some strong appreciation pressure largely because of what’s going on in the US, which has overall pumped in more liquidity back to Asia. It’ll probably moderate moving into the second half of 2013 but overall, I think it will remain relatively stable throughout the year,” he said.
MIDF Research has a similar view, banking on no significant changes in global economic conditions to keep the ringgit stable against the US dollar.
“The Malaysian ringgit has been trading at an average of 3.10 per US dollar for the last one year. With no substantial movement in the global economic conditions expected in 2013, we expect the USD/RM exchange rate to remain stagnant around the current level in 2013,” the research house said in its recent 2013 Outlook Report.
On the premise that no unforeseen economic shocks occur, Wong predicts the US dollar index to hit 80.95 points by the end of 2013, implying a depreciation rate of 2.1%.
“As long as we don’t see any major economic shock from say Japan or Europe the USD will likely remain weak. If a major shock happens, then liquidity will be pumped back into the US and the US dollar will be seen as a safe haven again,” he added.
This article first appeared in The Edge Financial Daily, on Dec 27, 2012.