Ringgit Opens Higher Against USD on Weak US Data

Weak US Economic Data

The ringgit opened stronger against the US dollar after the United States reported weaker economic data, suggesting that the case for rate cuts by the US Federal Reserve (Fed) and the prospects for a reduction in the Fed Fund Rate remain intact.

Economic Indicators

The US Dollar Index (DXY) slipped 0.31% to 107.62 points as business sentiment in the service sector softened last month. The two- and 10-year US Treasury yields fell by 3.0 and 9.0 basis points to 4.19% and 4.42%, respectively, indicating that prospects for a reduction in the Fed Fund Rate remain intact.

ISM Index

The Institute for Supply Management (ISM) Index for the non-manufacturing sector stood at 52.8 points in January, lower than consensus estimates of 54.2 points, bolstering the case for rate cuts by the Fed during this year. The sub-index for Prices and New Orders also suggests lower inflation prospects along with moderation in economic activities.

Impact on Ringgit

The ringgit was traded mostly higher against other major currencies, appreciating against the euro to 4.5912/6068 and rising vis-à-vis the British pound to 5.5196/5384. It also edged up against the Japanese yen to 2.8941/9042 and other ASEAN currencies, such as the Singapore dollar to 3.2738/2854 and the Thai baht to 13.1461/2038.

Forecasts

Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid noted that the ringgit could test the RM4.40 level today in light of improved market conditions. He added that the prospects for a reduction in the Fed Fund Rate remain intact, which could further support the ringgit’s strength.

Conclusion

The ringgit’s strengthening against the US dollar is attributed to the weaker US economic data, which has bolstered the case for rate cuts by the Fed. This could lead to a reduction in the Fed Fund Rate, making it more expensive for foreign investors to borrow money in US dollars, which in turn could strengthen the ringgit.

FAQs

Q: What is the current exchange rate of the ringgit against the US dollar?
A: The ringgit strengthened to 4.4150/4300 against the US dollar.

Q: What are the factors driving the ringgit’s strengthening?
A: The weaker US economic data, which has bolstered the case for rate cuts by the Fed.

Q: Will the ringgit continue to strengthen?
A: The ringgit could test the RM4.40 level today in light of improved market conditions, according to Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid.