PETALING JAYA - The ringgit could continue to strengthen against the US dollar this month despite the two-day correction seen since Monday.
According to the AmBank Group foreign exchange research and strategy report, valuation wise, the ringgit has a leeway to strengthen and, based on historical data, it has a good chance to continue strengthening this month.
"The seasonality pattern of the ringgit in April of each year surprisingly has the highest predictable change compared to other months of the year. Since 2006, the ringgit has consistently demonstrated its appreciation bias against the US dollar in April," it said.
Hence, it said the strengthening of the ringgit would likely continue into the first half of the year, aided by the supportive seasonality of Petroliam Nasional Bhd's dividend repatriation although it would be smaller at RM16bil compared to RM26bil in 2015, the additional transfer of government-linked companies-related overseas asset sales, further foreign inflows into local bond markets and a stable yuan exchange rate.
Notably, the ringgit had climbed to its seven-month high of RM3.865 a dollar on April 4 before declining to RM3.922 in yesterday's trade.
The slide in the ringgit yesterday was also in line with other regional currencies tracking the recent weakening crude oil prices.
Meanwhile, shares in export-oriented stocks such as glove makers soared as investors turned bullish with the weaker ringgit yesterday.
Top Glove Corp Bhd's share price rose 16 sen to RM5.20, Supermax Corp Bhd upped 15 sen to RM2.75, and Kossan Rubber Industries Bhd and Hartalega Holdings Bhd increased 10 sen and seven sen to RM6.10 and RM4.77.
The ringgit weakened against the major currencies, falling to 3.9235 to the US dollar from 3.9005, while slipping to 5.5844 against pound sterling from 5.5376. It was also lower against the Singapore dollar at 2.8922 from 2.8839 earlier.
In the stock market, the FTSE Bursa Malaysia KL Composite Index closed seven points lower or 0.42 per cent to 1,718.08 at yesterday's close.
The AmBank report said Bank Negara was unlikely to intervene to smooth out the recent ringgit's gains, partly given its deep under-valuation and the need to rebuild the foreign exchange reserve position.
Foreign money inflows into the local stock market in March were among the highest since April 2013.
According to a Credit Suisse report, Malaysia saw a record net foreign equity inflow in March 2016 totalling RM6.1bil, which contributed to the ringgit strengthening against the greenback by 10.3 per cent year to date.
Malaysia is currently Asia's top-performing currency since the beginning of the year.
"Although there is clearly more interest from foreign institutions, we observe that the bulk of the foreign inflows are exchange traded fund or index-linked programmes," Credit Suisse said.
Among local stocks, its top picks are Genting Plantations Bhd, Genting Bhd, AirAsia Bhd, Gamuda Bhd and IJM Corp Bhd.
MIDF Research attributed the recent strengthening of the ringgit to the US Federal Reserve being more dovish on its interest rate hike as well as the 1Malaysia Development Bhd debt settlement news.
"We are expecting the Fed to conduct an interest-rate hike once this year in June by 25 basis points (bps), while Bank Negara's overnight policy rate will be cut by 25 bps in the second half of 2016," it said in a report yesterday.
However, the research house said it would be "difficult" for the ringgit to reach its real fair value of RM3.70 a dollar as it did not expect negative sentiment on the ringgit to totally diminish.
It has tweaked its year-end forecast for the ringgit to RM3.85 a dollar from RM4 previously.