Investors are watching the latest US inflation data closely, with expectations of another Federal Reserve rate hike continuing to influence the currency market. The ringgit may continue trading on the weaker side against the US dollar next week as markets remain cautious over the possibility of another US interest rate increase later this year.
The main concern is that the US Federal Reserve could still raise its benchmark rate by another 25 basis points if inflation does not cool down enough. This expectation has kept the US dollar relatively strong, while putting pressure on regional currencies such as the Malaysian ringgit.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the same market sentiment is likely to remain in place in the coming week, especially while investors continue to favour the greenback.
US Inflation Data Will Be Closely Watched
One of the key events on investors' radar is the release of the United States Personal Consumption Expenditures, or PCE, Price Index on June 26.
The PCE Price Index is closely followed because it is the Federal Reserve's preferred measure of inflation. A reading that remains high could reinforce the view that the Fed may need to keep interest rates elevated for longer, or potentially raise them again.
That would generally support the US dollar and make it more challenging for currencies in the region, including the ringgit, to strengthen in the short term.
Dr Mohd Afzanizam noted that inflation in the US is expected to remain firm, which could continue weighing on the local currency in the near future.
Ringgit Ends the Week Lower Against the US Dollar
For the week ended Friday, the ringgit weakened against the US dollar, closing at 4.1340/1395 compared with 4.0555/0600 in the previous week.
The weaker performance was not limited to the US dollar. The ringgit also traded lower against several major global currencies.
Against the British pound, the ringgit eased to 5.4709/4782 from 5.4429/4489 previously. It also weakened against the Japanese yen, moving to 2.5636/5671 from 2.5334/5364.
Meanwhile, the ringgit slipped against the euro to 4.7376/7439, compared with 4.6979/7031 a week earlier.
Pressure Also Seen Against ASEAN Currencies
The ringgit also faced pressure against several ASEAN currencies during the week.
It fell against the Indonesian rupiah to 232.2/232.5 from 227.0/227.4 previously. Against the Singapore dollar, the local currency eased to 3.2019/2064 from 3.1602/1640.
The ringgit also weakened against the Thai baht, moving to 12.5856/6074 from 12.4105/4288. It declined against the Philippine peso as well, trading at 6.80/6.81 compared with 6.67/6.68 in the prior week.
What This Means Going Forward
For now, the ringgit's near-term direction is likely to depend heavily on US economic data and how strongly the Federal Reserve signals its next move.
A higher-than-expected inflation reading could boost the US dollar further, while softer inflation data may give some breathing room to regional currencies. Until there is clearer evidence that US inflation is easing steadily, the ringgit may continue to experience some pressure in the foreign exchange market.
Final Thoughts
The ringgit's recent movement shows how closely Malaysia's currency remains linked to global interest rate expectations. With the US inflation report coming up, the market could see further volatility in the days ahead as investors assess whether the Federal Reserve may still tighten monetary policy later this year.
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