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       KUALA LUMPUR: The ringgit is likely to see some recovery later this year on better economic prospects and fund inflows although volatility will come from policy tightening by the US Federal Reserve (Fed).

       According to HSBC’s global head of foreign exchange research Paul Mackel, there are enough sources of growth to support the local currency in the coming months, including a wider “core” balance of payments.

       He noted that foreign direct investment (FDI) inflows could rise further, based on previously approved FDI applications.

       Bank Negara’s policy normalisation should also help the ringgit maintain a yield advantage against the US dollar and keep real rates positive.

       HSBC is expecting two rate hikes from the central bank this year.

       According to HSBC’s global head of foreign exchange research Paul Mackel, there are enough sources of growth to support the local currency in the coming months, including a wider “core” balance of payments. He noted that foreign direct investment (FDI) inflows could rise further, based on previously approved FDI applications.

       “US-dollar-to-ringgit is hovering near its year-to-date high due to various external challenges. There are still a lot of uncertainties, but we believe the undervalued ringgit can recover in 2022 as Malaysia’s economy emerges from a ‘double-dip’ recession.

       “HSBC Economics is optimistic about Malaysia’s consumption prospects and exports outlook,” he told StarBiz.

       Mackel also noted that greater confidence in the domestic economy and in local assets would help curb residents’ foreign asset accumulation.

       Analysts are generally expecting a firmer ringgit in the second half of the year.

       In a recent report, AmBank Research highlighted that selling pressure on the ringgit is expected in the first half of 2022, partly due to the strengthening of the US dollar itself on the back of a more hawkish tone by the US Fed.

       This could see the ringgit reach the RM4.25 level – and possibly touch RM4.30 – against the greenback.

       head of foreign exchange research Saktiandi Supaat is looking at the local currency strengthening against the greenback from RM4.18 in the fourth quarter of last year to RM4.10 at end-2022." src="https://apicms.thestar.com.my/uploads/images/2022/01/17/1446861.jpg" onerror="this.src='https://cdn.thestar.com.my/Themes/img/tsol-default-image2017.png'" style="width: 620px; height: 428px;">Malayan Banking Bhd head of foreign exchange research Saktiandi Supaat is looking at the local currency strengthening against the greenback from RM4.18 in the fourth quarter of last year to RM4.10 at end-2022.

       It projected that the ringgit would, however, pull back from its weakening trend in the second half to hover around the RM4.20 levels.While a number of other external factors will affect the local currency, including the impact of new Covid-19 variants on the global economy which could result in an increase in demand for the dollar as a safe-haven hedge, AmBank Research said investors would focus on local authorities’ ability to continue enhancing the economy and financial resilience to lift the strength of the ringgit against major foreign currencies.

       “These will include maintaining a sustainable economic growth by rebuilding Malaysia’s fiscal position in containing the debt level and enhancing the competitive investment climate. It is vital to provide a clear, stable and certain policy landscape to attract the inflows of long-term capital and portfolio investment into domestic equity and bond markets.

       “The government needs to also address the increasing financial strains on the households and businesses impacted from the pandemic and now post-floods. These steps are particularly important especially when the stimulus measures are rolled back,” the research house said.

       On the other hand, the upside risk on the ringgit could be contained with expectations that the domestic economy would remain open for the larger part of 2022, supported by firm crude oil prices, a gradual weakening of the Chinese yuan and greater policy clarity.

       Apart from the uncertainties surrounding the developments of new Covid-19 variants, Mackel noted that political uncertainty may be an added risk to the ringgit.

       “One other risk to our constructive ringgit view is that political uncertainty may weigh on sentiment and affect capital flows,” said Mackel.

       Notably, there are concerns about the upcoming general election (GE) which may take place as early as the second half of this year when a cooperation pact signed between the government and the opposition expires.

       If that scenario materialises, it may induce some ringgit volatility from mid-2022 to 2023.

       The 15th GE has to be held before July 2023.

       Meanwhile, Malayan Banking Bhd head of foreign exchange research Saktiandi Supaat is looking at the local currency strengthening against the greenback from RM4.18 in the fourth quarter of last year to RM4.10 at end-2022.

       “We look for the US dollar against the ringgit to trade largely range-bound over the fourth quarter of 2021 to the second quarter of 2022, before potentially zig-zagging lower on net over time.

       “The pandemic trajectory looks to be on a broad downtrend after peaking in end-August and macro activity could recover more sustainably as curbs ease.”