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Ringgit falls against US$ ahead of a reading on personal consumption expenditures

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  • The Malaysian ringgit has retreated against the US dollar as investors exhibit caution ahead of the US personal consumption expenditure data release, which is a critical inflation measure affecting Federal Reserve policy decisions.
  • Despite slower US GDP growth in the first quarter of 2024, the ringgit's performance remains mixed against other currencies, influenced by a variety of factors including trade balances, foreign investment flows, and regional economic health.
  • The Malaysian government and financial authorities are actively implementing strategic economic measures to stabilize the ringgit and mitigate the impact of external economic challenges, including the economic slowdown in China and regional geopolitical tensions.

In the early trading hours of Friday, the Malaysian ringgit experienced a slight decline against the US dollar, setting the stage for a cautious market atmosphere as investors awaited the release of the US personal consumption expenditure (PCE) data. This key inflation indicator is closely monitored by the Federal Reserve and could influence future monetary policy decisions.

Economic Indicators and Market Reactions

The ringgit's movement was influenced by a combination of local and international economic indicators. Notably, the US GDP for the first quarter of 2024 grew at a slower pace of 1.6%, compared to the expected 2.5%. This underperformance is a clear signal of a slowing US economy, which traditionally would weaken the dollar. However, the upcoming PCE data has kept the markets on edge, reflecting in the cautious trading of the ringgit.

Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, commented on the situation, stating, "US GDP first quarter (1Q2024) came in lower than expected at 1.6 percent versus a consensus forecast of 2.5 percent, suggesting that the economy slowed in the first three months of this year." He further noted that despite these figures, the PCE price index was higher at 3.4 percent from 1.8 percent in the prior quarter, indicating persistent inflationary pressures.

The Ringgit in the Forex Market

The ringgit's performance was not just limited to its comparison against the US dollar. It showed mixed results against other major currencies. It appreciated against the British pound but depreciated against the Japanese yen and the euro. This mixed performance highlights the complex interplay of factors affecting the ringgit, including trade balances, foreign investment flows, and regional economic indicators.

External Influences and Predictions

External factors such as the performance of the Chinese economy and regional geopolitical tensions also play a significant role in the ringgit's valuation. The sluggish growth in China, a major trading partner, has adversely affected Malaysian exports, adding pressure to the ringgit. Additionally, the currency's future movements are likely to be influenced by the Federal Reserve's decisions on interest rates, based on the PCE data.

Economists and market strategists are closely monitoring these developments. Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, mentioned, "While the ringgit is likely to sustain a drop beyond 4.80 in the near-term, it is doubtful that it will breach its record low, as US dollar strength is expected to wane".

Strategic Economic Measures

In response to these challenges, the Malaysian government and financial authorities have implemented several strategic measures. These include encouraging the repatriation of foreign investment income and managing interest rates to bolster the ringgit. Such measures are aimed at stabilizing the currency and shielding the economy from external shocks.

As the market anticipates the release of the US personal consumption expenditure data, the ringgit's position remains tentative. The outcome of this data will be crucial in shaping the monetary policies of the Federal Reserve, which in turn will influence global forex markets and the ringgit's trajectory. Investors and policymakers alike remain vigilant, ready to respond to the evolving economic landscape.

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