KUALA LUMPUR – RHB Research expects ringgit to recover gradually over time, as it has overshot on the downside from its fundamental value.

The research house said ringgit strengthened by 0.1% to the RM4.227 per US dollar level in the first week of November, after depreciating by 0.1% in October.

“This was mainly due to stronger oil prices, amid expectations that Organisation of Petroleum Exporting Countries (OPEC) would favour an extension to the supply cut.

“This was also supported by the large trade surplus recorded in September,” RHB said.

“We believe ringgit had overshot on the downside previously. This was due to the strengthening of US dollar after Donald Trump’s victory in the US presidential elections and earlier uncertainties, after the central bank introduced measures to curb speculation by offshore traders, which has shown improvement of late,” it added.

Nevertheless, RHB said volatility in ringgit could still persist in the near term, given that the expectations of further US Federal Reserve rate hikes and shrinking of the US balance sheet.

It added that vulnerability from large foreign holdings of fixed income instruments in the country and volatility of oil prices could cause volatility to the local currency.

Meanwhile, Malaysia’s forex reserves rose by US$0.3bil to US$101.5bil as at Oct 31, from US$101.2bil at end-Sept. This was despite recording net outflows of funds in the equity and fixed income markets.

At the current level, Malaysia’s forex reserves are sufficient to finance 7.6 months of retained imports and cover 1.1x the short-term external debt of the nation.