Fitch unit sees ringgit weakening in 2020 before improving in 2021
KUALA LUMPUR, Dec 16 — The ringgit has been forecasted to weaken next year against the US dollar, but is set to be bullish in 2021, according to a forecast by the Fitch Solutions Macro Research group.
Their report published today cited several factors contributing to the potential weakening of the ringgit, most notably the current domestic political tensions compounded by the ongoing US-China trade war.
The report, by the Fitch Group subsidiary, noted short-term risks such rising ethnic tensions, the internal strife in PKR and the question of the party’s president Datuk Seri Anwar Ibrahim supposed ascension into the position as the prime minister as the more apparent reasons affecting the immediate sentiment towards the ringgit.
“Even if these risks do not completely materialise, the worsening situation is likely to have a negative impact on investor sentiment, which would weigh on the ringgit,” read the report.
It maintained its forecast average that the ringgit would be traded at an exchange rate of RM4.25 to one US dollar in 2020, where the report cited other reasons such as an unlikely resolution from the trade war and the upcoming US Presidential Election as the main factors behind the ringgit’s poor performance.
As for its long-term outlook, the group’s report suggested that the ringgit would strengthen come 2021 with its forecasts asserting that prolonged tensions between the US and China would naturally subside as both nations would most likely seek a resolution by then, to avoid further economic hardships.
“Economic hardship engendered by prolonged trade conflict would have fed through more strongly by then and sour sentiment in both countries about continuing the conflict.
“As such, we expect the ringgit to stabilise and strengthen slightly given the likelihood for a more stable US-China trade relationship,” it noted, adding the ringgit is forecasted to trade at an average of around RM4.20 against one US dollar in 2021.
The report also noted how Pakatan Harapan’s foreign investment policies has been made clearer for investors since taking over government in 2018, leading to a healthier investment outlook and strengthening ringgit come 2021.
It noted how the brighter investment outlook would be further supported by the current trend of companies moving their manufacturing hubs away from China as a result of the trade war, with Malaysia seen as an alternative production source.
However, the report warned against the weakening price of oil which will most likely limit the ringgit’s performance.
It forecasted a downward trend in Brent crude prices that could reach US$58 (RM240) per barrel in 2021, as compared to this year’s average US$64 (RM264) per barrel.
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