KUALA LUMPUR: The expected weakening of the US dollar (USD) over the next six to 12 months is anticipated to relieve pressure on the ringgit and lead to the appreciation of the Malaysian currency.
Standard Chartered Global CIO Steve Brice stated that the current overvaluation of the US dollar will also likely contribute to its material decline over a multi-year period.
“If the dollar does weaken, then that should be a tailwind for Asian assets including Malaysia,” he said during Standard Chartered’s Global Market outlook press conference today.
Additionally, Brice also commented on the US interest rate as it has a significant impact on the value of the USD. He believes that the US interest rate is currently at or close to its highest point. He further stated that the anticipated recession in the US would lead the Federal Reserve to lower interest rates which would weaken the dollar in the market.
“It can be argued that if we’re heading into a recession, it could lead to a short-term pause in interest rates. And the US dollar is overvalued on a multi-decade basis, it was close to its 30-year peak at the beginning of this year.
“How does this environment affect different asset classes? Historically, when the US dollar weakens, investments tend to perform better across the board. Equities do better when the dollar weakens. Bonds do better when the dollar weakens. Gold does better when the dollar weakens, even, hedge fund strategies, bizarrely, also do better when the dollar weakens. Everything does better when the dollar weakens,” he said.
An interesting note, on Wednesday (US time), the value of the US dollar decreased to its lowest point in over a year as US inflation eased in June. The dollar index dropped to as low as 100.54, the lowest since April 2022.
Following that, the Malaysian ringgit strengthened against the US dollar. In early trade today, the ringgit climbed by 310 percentage points compared to the dollar. At 9am, the exchange rate was 4.6190/6230 ringgit against the dollar, whereas it was 4.6500/6535 at the close of trading on Wednesday.
Brice commented that on a three-month view, Standard Chartered thought USD would be moving relatively range-bound. However, this move on the dollar index on Wednesday calls that into question as it broke through a key support level.
Meanwhile, Standard Chartered Malaysia today unveiled their Signature CIO Funds. Brice said the funds offer retail investors the opportunity to invest in a portfolio that adopts a more balanced strategy while leveraging on Amundi’s asset management capabilities, being the top asset manager in Europe.
“The funds aim to address these market uncertainties by offering sustainable risk-adjusted returns for long-term wealth accumulation through diversification,” said Brice.
According to the bank’s Global Market Outlook report, financial markets in 2H’23 will present a challenge to investors as two conflicting narratives jostle for attention. The report shows a ‘no-landing’ scenario which argues for chasing equities higher as the US avoids a recession altogether and secondly, a scenario where risky assets are not worth holding at all as a deep recession awaits.
