If the forecast for interest rates is any indication, the Malaysian ringgit is set to continue its upward trend following what is probably going to be its greatest quarter since 1973, according to Bloomberg.
The ringgit is the best performing emerging-market currency this quarter. It increased by more than 12% vs the dollar thus far. It is possible that the ringgit would continue to gain due to declining rate differentials with the US, better trade performance, and attractive asset valuations, according to analysts.
Even if other central banks are beginning to reduce borrowing costs, Bank Negara Malaysia may remain on hold until 2025. This is due to strong economic growth and the possibility of higher consumer prices if the government moves forward with eliminating some gasoline subsidies. The ringgit will also be supported by inflows of foreign capital and additional conversion of foreign currency deposits.
“Malaysia’s current account surplus, neutral central bank stance and stable fundamentals may help with further gains in light of dollar weakness.” Said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp.
“This is particularly so if markets expect more rate cuts by the US. Reducing yield differentials between the US and Malaysia.”
Since April, the ringgit has experienced significant growth due to a surge in exports and initiatives by the central bank to incentivize state-affiliated companies to return foreign investment profits. This quarter, the rally gained momentum as investors placed bets on Southeast Asian winners in anticipation of a potential softening of Federal Reserve policies.
According to data collated by Bloomberg, foreign funds have invested a total of US$2.5 billion (RM10.52 billion) in the country’s bonds in July and August and purchased US$1.2 billion worth of local equities since the end of June.
According to Chandresh Jain, a strategist at BNP Paribas, the ringgit would also profit from a rotation into Asia. Overseas investors had been overweight on Latin American currencies throughout the previous year. He stated, “This flow should continue for a while.”
According to data released on Monday, Malaysia’s consumer prices increased 1.9% year over year in August, slightly less than anticipated. On Monday, the ringgit was trading at 4.2055 per dollar, slightly down against the US currency.
Market signs point to a possible near-term correction, indicating that the ringgit’s current spike may be overdone. Investors will be closely monitoring the nation’s progress on reforming subsidies and reducing its fiscal imbalance when the budget is announced next month.
“There is no doubt that the ringgit valuation is attractive and cheap, based on effective exchange rate.” According to Bank of New York Mellon strategist Wee Khoon Chong,
