Steve Brice, the chief investment officer of Standard Chartered, reiterated the bank's confidence in a weakening US dollar in the long term. (Photo by Sam Fong/The Edge)

KUALA LUMPUR (July 13): Economists and financial institutions are currently divided on the future movement of the USD/MYR exchange rate, with Standard Chartered expressing confidence in the easing of pressure on the ringgit, while RHB Banking Group maintained an opposite perspective.

Standard Chartered believes that the pressure of the US dollar on the ringgit will ease over the next six to 12 months. This view is based on the lower-than-expected inflation in the US, which suggests that the Federal Reserve may only raise interest rates once later this year.

Steve Brice, the chief investment officer of Standard Chartered, reiterated the bank's confidence in a weakening US dollar in the long term following the recent drop in the US dollar index to its lowest level since April 2022.

He expects this weakening trend to significantly ease the pressure on the ringgit, not only in the long term, but possibly in the shorter term as well. Brice said, "I won't be looking at ringgit weakness in the next one, three- and 12-month time horizons."

In contrast, RHB Banking Group chief economist Dr Sailesh K Jha believes that the recent drop in USD/MYR is temporary, and expects the exchange rate to eventually rise.

RHB maintained its forecast of a short-term target of 4.65 for USD/MYR, with the ringgit weakening further against the US dollar to a range of 4.65-4.75 by the end of the third quarter of 2023, and further to 4.70-4.80 towards year end.

Jha argued that the overnight drop in US Treasury (UST) yields, caused by a lower-than-expected US June core consumer price index, was an anomaly.

RHB expects inflation to remain sticky in the US during the second half of 2023 (2H2023), which will drive further weakening of the ringgit against the dollar.

“From a carry perspective, the momentum is likely to reaccelerate in terms of US-versus-Malaysia rates. This will drive USD/MYR higher,” he said, as RHB maintained its forecast of a 2H2023 average UST 10-year yield of 3.90%-4.40%.

RHB's outlook is also influenced by its forecast of a further weakening of the Chinese yuan (CNH) against the US dollar to 7.1909 in the near-term due to weak economic data in China and the negative carry of holding yuan versus the greenback — with its end-3Q2023 forecast for the two currencies at 7.25, and its end-2023 projection at 7.30-7.40 — and the positive correlation between USD/MYR and USD/CNH.

The diverging views of Standard Chartered and RHB highlight the dynamic nature of currency markets, and the multitude of factors that influence exchange rates.

The interpretation of economic data and expectations of central bank policies play a crucial role in forming these views. Standard Chartered's outlook suggests a weakening US dollar, which would relieve the pressure on the ringgit.

On the other hand, RHB expects the USD/MYR exchange rate to rise due to persistent inflation in the US.

Both banks' views underline the importance of monitoring economic indicators, interest rate decisions, and geopolitical developments to gauge the future direction of the USD/MYR exchange rate.

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RHB says recent drop in USD/MYR temporary, maintains forecasts of 4.65-4.75 for end-3Q2023