PETALING JAYA – The ringgit could benefit should US Federal Reserve chairperson nominee Jerome Powell be approved, considering his “gradualist” approach towards US monetary policy, which could see the local unit stabilising against the greenback.
US President Donald Trump announced the nominee on Friday, which is now subject to approval of the US Senate.
IHS Markit Asia Pacific chief economist, IHS Markit, Rajiv Biswas said the ringgit has already benefited from the resurgent gross domestic product (GDP) growth and booming exports in 2017.
Expectations of the new Fed chairman will take a gradualist approach to further tighten US monetary policy should help to keep the ringgit relatively stable against the dollar in the near term.
“Nevertheless, Asian financial markets still face medium-term challenges as the US Fed continues to gradually tighten monetary policy over 2018-19, with the Fed Funds rate expected by IHS Markit to reach 3% by the end of 2019 and 10-Year US Treasury yields also expected to rise. Consequently, Asian capital markets, which have become intoxicated by very low interest rates and waves of liquidity for the past decade, will face a changing landscape due to the rising US Fed Funds rate,” Biswas said on Asian financial markets.
Powell as the potential successor to Janet Yellen, whose term ends in February, will give the Asian financial markets an assurance that the Fed may not significantly alter its approach to gradual tightening of monetary policy, which will prevent disruptive movements in Asian equities and currency markets by allaying global investor fears that the US Fed could adopt a more hawkish monetary policy.
This, in turn, will help prevent sharp volatility in Asian currency markets, due to anticipation of moderate US Fed rate increases.
The yuan could find stability through renewed investor confidence due to the strengthening of China’s economy and increasing Chinese foreign exchange reserves.