By Chris Prasad
The current volatile state of the foreign exchange market is causing a ruckus across global economies. The strength of the United States Dollar (USD), the weakening of the Euro and our very own plummeting ringgit is giving rise to much cause for concern in terms of import/export costs and price disparities.
However, if a silver lining can be drawn from the current situation, it is that a devalued ringgit may in fact entice more buying in Malaysia, especially among international investors looking to capitalise on the current low entry cost and reap benefits from the subsequent potential rebound of Asian currencies.
Such a rebound in 2015 is plausible, but intricately linked to the performance of the USD in the coming months, said Jameel Ahmad, the chief market analyst for foreign exchange broker Forex Time Ltd (FXTM).
FXTM was in Kuala Lumpur recently to conduct a media briefing on the impact of the foreign exchange market on the global economy.
At the event, Ahmad pointed out that emerging markets in Asia – including Malaysia – will likely benefit the most from any weakness in the USD.
“In general, 2015 is expected to be a year of high volatility, but it is also the year of the USD, and many markets will be eager to see if the US Federal Reserve will finally increase interest rates,” he said.
Ahmad explained that an increase in interest rates will see quick cash-outs among traders, which in turn will weaken the USD. As a result, we will see many Asian currencies strengthen against the value of the USD.
Market observers’ note that investors, particularly cross-border property investors, can benefit greatly from a bounce back, as typically they would be out to maximise capital returns. In a country such as Malaysia, where the ringgit has been seen as the worst performing currency in the region over the last six months, international investors could see an opportunity to jump in ahead of any announcement from the US Federal Reserve.
Ahmad was quick to point out, however, that the US will not be in a rush to increase interest rates, and while there is high anticipation and pressure for them to do so, the Federal Reserve will only likely consider it in September this year.
“I think it is inevitable that the US will increase rates, but I anticipate that they will do so very gradually. The Fed will be cautious, as they will not want traders rushing to the USD,” Ahmad said.
“Also, despite the improving economy in the country, along with increased jobs and close to 0 per cent interest rates, US consumers are still not spending. The Fed will be wary that any increase in interest rates might actually motivate Americans to save and not spend; so I think interest rates will rise nominally on a gradual basis,” he opined.
Drawing a parallel, he said it is fair to conclude that, to a certain extent, the fate of the ringgit in the coming months will hinge on improved consumer confidence in the US.