KUALA LUMPUR, Nov 6 — The ringgit is expected to appreciate to RM4.30 against the US dollar by year-end as the Federal Reserve (Fed) is deemed to have ended its tightening cycle for the year, said MIDF Research.

In a note, the research firm said it expected emerging market (EM) currencies would strengthen as the US interest rates were near the cycle peak, which would lead to the return of fund flow into riskier markets.

"With the OPR expected to be maintained at 3.00 per cent going into 2024, we expect the ringgit will benefit from no further widening of the Fed Funds Rate-Overnight Policy Rate (FFR-OPR) differential.

"Economic fundamentals generally remain supportive of the ringgit with the domestic economy displaying resilience, with inflation under control,” said the research house.

It added that the recent signs of continued recovery in China and increased electrical and electronics (E&E) exports would indicate better external trade performance in the coming months.

The elevated global commodity prices will benefit the ringgit as Malaysia is a net commodity exporter.

"While we are optimistic the ringgit will appreciate towards year-end, there is a downside bias which will limit the ringgit from strengthening further.

"For example, the absence of a definitive pause by the Fed, another rise in US treasury yields and escalating geopolitical crisis in the Middle East could lead to renewed support for the US dollar,” it said.

On the ringgit’s performance, MIDF Research said the ringgit touched an all-time low in October 2023 as it closed the month 1.4 per cent month-on-month weaker at RM4.764 on the back of a stronger dollar.

In terms of the monthly average, the ringgit depreciated at the same rate to RM4.747.

It touched the lowest daily closing level ever recorded at RM4.794 on Oct 23 as the dollar strengthened and treasury yields increased in reaction to the conflict in the Middle East.

"We remain optimistic the ringgit would appreciate towards year-end as more fund flows are likely to return to emerging markets with no further widening of the FFR-OPR differential seen,” it said. — Bernama