The ringgit is likely to trade lower next week against the greenback on expectations that the US Federal Reserve's
unwinding of its Quantitative Easing (QE) programme will continue to weigh on the local currency, dealers said.
There are expectations that the Fed will announce plans on tapering its QE programme at its policy meeting next week but on a small scale due to recent disappointing US jobs data.
RHB Research said the ringgit is vulnerable to global swings in risk appetite due to foreign investors owning a significant portion of Malaysian money market funds, government papers and equities.
RHB Research said Malaysia's foreign exchange reserves remain sizeable and will continue to provide underlying support for the ringgit.
"The Central Bank had allowed the currency to weaken, in line with the regional trend, without spending its foreign exchange reserves to defend the ringgit," the research house said.
The ringgit, RHB Research said, has been under selling pressure due to short-term capital outflow, after Fed Chairman Ben Bernanke reaffirmed on June 20 that the central bank would taper their US$85 billion in monthly bond purchases by the end of this year and end it around mid-2014, if incoming data are broadly consistent with the Fed’s forecast.
The situation was compounded by a deterioration in certain Asian countries’ current account positions such as those of India and Indonesia.
With stable capital flow, the ringgit is fundamentally supported at around RM3.10 to the US dollar, RHB Research said.
During the week, the ringgit was at its strongest level in one month, on continued weakening of the US dollar, as recent disappointing US employment data raised doubts on the extent the US is ready to reduce its bond-buying programme.
The rise in Malaysia's industrial production index (IPI) and upbeat forecasts for the Malaysian economy for the third quarter of the year also boosted the local currency.
The IPI rose 7.6 per cent year-on-year for July.
The ringgit trended higher against major Asian currencies but was lower against European currencies in line with the strengthening of the euro.
On a Friday-to-Friday basis, the ringgit was higher against the US dollar at 3.2880/2920 from 3.3270/3300 last Friday.
The local currency was higher against the Singapore dollar at 2.5876/5913 from 2.6008/6036 last Friday.
The ringgit rose against the yen to 3.2979/3036 from 3.3377/3414 last Friday.
The local currency, was however, lower against the British pound at 5.1973/2050 from 5.1808/1868 last Friday, and eased against the euro to 4.3694/3754 from 4.3680/3730.-- Bernama