Uptrend buoyed by second round of US quantitative easing

PETALING JAYA: The ringgit is expected to continue its uptrend, buoyed by firm sentiment on regional currencies and the current second round of quantitative easing (QE) by the United States.

"We see a broadly weaker greenback in the first half of the year, especially in the first quarter,' CIMB Investment Bank Bhd currency strategist Suresh Kumar Ramanathan told StarBiz. "The ringgit is expected to strengthen to 2.97 against the US dollar, in line with the strengthening of the currencies in the region,"

However, among the Asian currencies, Suresh did not see the yuan story as compelling early next year compared with the same period of this year.

"The rise of the renminbi will take a back seat to the QE story," Suresh added.

He said the QE policy involving the US Federal Reserve's buying of US$600bil of Treasury bills over eight months, starting from November, would continue to be a major factor in the rise of emerging Asia's currencies for most of the first half of 2011, as "hot money" flowed in.

Suresh said there was a risk of further appreciation in the region's currencies, should a third round of quantitative easing be required, after the current round ended next June.

This is particularly so if the attempt to boost growth and cut unemployment, coupled with a promise to keep interest rates near zero, failed.

However, should the US economy recover in the second half of the year, there would be a marginal strengthening of the greenback against major currencies, said Suresh.

Meanwhile, OSK Investment Bank Bhd currency trader Godwin Chan expects the ringgit to strengthen against the US dollar in the first quarter on expectations of an increase in Malaysia's benchmark policy rate, which stands at 2.75%. This is expected to commence from next March.

"We're looking at the ringgit moving to between 2.90 and 3 against the US dollar by the end of 2011, as Bank Negara moves to increase the overnight policy rate to curb inflation," he said, noting the rise in property and food prices.

According to Chan, fundamentals driving the ringgit include inflows of funds from investors chasing higher returns and Malaysia's commitment to bring down the budget deficit.

A currency trader with a foreign bank said the first half of 2011 would still see funds flowing into Asia as high unemployment in the United States continued to worry investors.

"High unemployment in the United States and concerns over budget deficits in the euro-zone will be the main focus of investors," he said.

He expected the ringgit to be a laggard although the currency would continue to strengthen in tandem with regional currencies.

"The ringgit will be a laggard as it's been ahead of the curve in the first half of this year. For now, Malaysia will look to fundamentals including intra-regional trade to boost falling exports while domestic demand is still intact in the region," he said.

- The Star Online