Following the latest US inflation data for May, investors are strengthening expectations that the Federal Reserve (Fed) will keep interest rates unchanged at its policy meeting early tomorrow morning.
Following that, the chief economist of Bank Muamalat, Afzanizam Abdul Rashid opined that it might give a boost to the Malaysian ringgit currency to strengthen.
The US consumer price index (CPI) unexpectedly rose 4.0% last month, lower than expectations for a 4.1% rise and down from the 4.9% recorded in April.
Even so, the ringgit failed to react significantly following the data, instead remaining traded low at 4.61 against the US dollar in today's trading session.
Back to the original title, can the ringgit strengthen if the Fed temporarily halts interest rate hikes?
It may provide temporary support for the ringgit to strengthen, but if seen from a broader perspective, the local currency has the potential to continue to weaken.
This happens when taking into account other internal and external factors such as investor confidence in Malaysia and the global economic situation which is seen to be getting weaker especially China.
Beijing is now struggling to post a recovery following its Covid-19 shutdown last year, with economic data showing uneven growth.
This led China to increase stimulus in monetary and fiscal policy amid a growing real estate market crisis and concerns about financial stability.
In terms of internal factors, the current depreciation of the ringgit is linked to the outflow of foreign investors that has been increasing lately, pushing the ringgit to weaken against other currencies.
Even in a new development, the ringgit weakened to a new all-time low against the Singapore dollar to 3.41.
In conclusion, the ringgit has the potential to strengthen if the Fed temporarily stops its tightening, but other factors can limit the strengthening of the local currency.
