KUALA LUMPUR (July 31): The ringgit continued its uptrend on Wednesday, closing at a near 11-month high of RM4.58 against the US dollar.

An analyst said this was driven by the Bank of Japan’s (BOJ) decision to raise interest rates and the anticipation of a Federal Reserve interest rate cut in September. 

At 6pm, the ringgit soared 315 basis points to 4.5885/5925, compared to the greenback’s closing of 4.6200/6235 on Tuesday (July 30).

UOB Kay Hian Wealth Advisors head of investment research Mohd Sedek Jantan said the BOJ’s move signalled confidence in Japan’s economic recovery, and it could bolster investor confidence in Asian currencies, if the positive sentiment extends to global markets. 

“This will lead to a continued strengthening of the ringgit.

“Higher closing in the majority of Asian markets today is evidence that investors are now starting to move towards emerging markets in Asia,” he told Bernama.

Mohd Sedek said that attractive interest rates in Japan might encourage investors to seek higher yields elsewhere, including in emerging markets like Malaysia.

“As investors diversify their portfolios, capital inflows into Malaysian assets can further strengthen the ringgit,” he added. 

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the BOJ, as expected, raised their policy rates by 15 basis points, bringing it to 0.25%.

“Perhaps the rise in BOJ’s rate and the growing expectation of a rate cut in the US would result in further demand for emerging market currencies, including the ringgit,” he said.

The Federal Open Market Committee (FOMC) is expected to announce their decision later on Wednesday, with most consensus projecting no change in the Fed Fund Rate.

While the Federal Reserve (Fed) is expected to keep its policy rate at status quo, Mohd Afzanizam foresees that the Fed would want to provide clear guidance on the eventual rate cut, where market participants have assigned a higher probability for September.

Meanwhile, the local note traded mostly higher against a basket of major currencies.

The ringgit rose against the British pound to 5.8875/8926, from 5.9427/9472, and was higher against the euro to 4.9680/9723, from 5.0044/0082 at Tuesday’s close.

However, it fell against the Japanese yen to 3.0515/0545, from 2.9845/9870. 

Meanwhile, the local note traded mostly higher against Asean currencies. 

It rose against the Indonesian rupiah to 282.1/282.5, from 283.3/283.7, improved against the Singapore dollar to 3.4273/4306, from 3.4370/4398, and inched up against the Philippine peso to 7.86/7.87, from 7.87/7.89 previously. 

The ringgit slipped vis-a-vis the Thai baht to 12.8717/8880, from 12.8319/8470.

https://www.theedgemarkets.com/node/721145