PETALING JAYA: The ringgit is expected to remain volatile against the US dollar as the Russia-Ukraine war intensifies but the saving grace will be the firm commodity prices and likelihood of a hike in the overnight policy rate (OPR) in the second half of this year.

       Economists and foreign exchange (forex) strategists are pegging the US dollar to trade between RM4.15 and RM4.20 against the ringgit this year but added that the situation is fluid and much would depend on the macroeconomic conditions.

       Bank Islam (M) Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz that the ringgit is expected to be volatile against the greenback as the war in Ukraine represents the biggest tail risks to the domestic currency.

       “Judging from the Volatility Index which currently is at 35 points, this means that the risk is still lower compared to 83 points recorded in mid-March 2020, at a time when the Covid-19 was categorised as pandemic by the World Health Organisation.

       Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid

       “Meaning the risks brought about by the Ukraine war are still relatively low but they can always morph into something that can have a significant impact on the global economy. This is especially true when there are major economies that could be entangled in the current military conflict.

       “So the value of the ringgit will continue to be affected by the external events, especially the war in Ukraine.

       “The main factor will be the duration and the intensity of the military conflict. If it evolves into a greater scale, it could result in risk-off mode among the forex investors and traders which could lead to higher demand for safe haven currencies,” he added.

       Afzanizam, however, said it is not all doom and gloom for the local currency as the ringgit could strengthen. Should crude oil stay elevated, he said it could help improve the government’s revenue thereby allowing expansionary fiscal policies to be implemented. Possibility of higher OPR could also help to improve the value of ringgit, he noted.

       He forecasts the ringgit at the end of June to be at RM4.18 against the US dollar, adding that with the reopening of international borders by April 1 and strong commodity prices would be the key underpinning factors for ringgit.

       At press time, the international benchmark Brent crude was trading at close to US108 (RM453) per barrel, up 0.7%, while the ringgit was hovering at RM4.19 to the US dollar.

       OCBC Bank forex strategist Terence Wu said beyond the geopolitical tensions, he expects the market to re-focus on the global and domestic fundamentals.

       OCBC Bank FX Strategist Terence Wu

       Globally, he said the central bank policy stances would be the main driver for forex.

       In this context, the US Federal Reserve (Fed) remains the pre-eminent hawk within the central bank space. This should provide overall support for the US dollar.

       “Meanwhile, we do not rule out domestic developments in Malaysia imparting some volatility to the US dollar-ringgit exchange rate.“Overall, we expect the US dollar-ringgit to be limited by the 4.15 and 4.25 range extremes in the medium term, with a slight bias to edge towards the lower-end of the range into the year-end,” he said.

       Wu said he expects elevated commodity prices due to the Russia-Ukraine conflict and which should benefit the ringgit as Malaysia is a net commodity exporter.

       Having said that, he said the broader risk-off environment also implies that it is unlikely for the local currency to appreciate significantly.

       Meanwhile, Socio Economic Research Centre executive director Lee Heng Guie expects the ringgit to remain weak against the US dollar in 2022, influenced largely by the anticipated more interest rate hikes by the US Fed, continued external challenges and domestic concerns.

       Domestic concerns revolve around inflation, economic condition, impact of fuel subsidies on the budget deficit and lingering political uncertainty, he said.

       Socio Economic Research Centre executive director Lee Heng Guie

       He said investors are eyeing on Bank Negara’s monetary policy direction as it strikes a balance between supporting growth and anchoring inflation expectations.

       Lee expects the ringgit to trade at RM4.20-4.25 against the US dollar in the first half and RM4.15-4.20 in the second half of the year.