THE Malaysian ringgit’s rebound is gathering pace, thanks to stronger growth and expectations of an impending interest rate cut by the Federal Reserve.
After falling to a 26-year low in February, the Malaysian currency is now less than 1 per cent away from erasing its losses for the year. OCBC is forecasting for the ringgit to rise to 4.60 per US dollar by mid-2025. The local currency is up 0.2 per cent against the greenback early Wednesday (Jul 31).
The ringgit became Asia’s top performer in the past three months as Bank Negara Malaysia encouraged state-linked firms to repatriate and convert foreign income and used forwards to support the currency. An upturn in the global technology cycle is also aiding export recovery, while a record discount to the US should narrow once the Fed eases policy.
“We look for the ringgit to recover some lost ground when yield differential dynamics further improve as the Fed gets closer to embarking on a rate cut,” said Christopher Wong, a foreign exchange strategist at OCBC. Foreign inflows into local shares, sustained recovery in the semiconductor cycle and an eventual recovery in the Chinese economy offer further support, he added.
With US swaps pricing a full quarter-point cut by September, an eventual Fed rate cut will buoy the local currency by making it relatively more attractive for US dollar-based investors to buy ringgit-denominated assets. Malaysia’s policy rate is currently at 250 basis points below the upper bound of the Fed fund rate.
The ringgit raced ahead of its emerging Asia peers as exports returned to positive territory in the three months ended June. This comes after overseas shipments contracted in 12 out of 13 straight months amid weak demand from China, the nation’s largest trading partner.
Analysts expect Malaysia’s economy to continue its growth momentum after second-quarter gross domestic product beat all estimates. That would allow the central bank to keep borrowing cost steady and offer support for the ringgit as developed countries are poised to cut rates. BLOOMBERG
