Ringgit Appreciation: Correction or Anomaly?

The ringgit’s recent strong rise against the US dollar has overshadowed the local note’s performance against regional currencies. The ringgit’s performance versus the greenback has been rather extraordinary this year, outdone only by its appreciation against the Japanese yen, Korean won and Indian rupee. It has also strengthened measurably against the Singapore dollar, the Chinese yuan, the Hong Kong and Australian currencies as well as the Thai baht. 

Some predict the Malaysian currency’s strength to be sustained in the near term, with full-year gross domestic product (GDP) growth expected at 5% to 5.5%, coupled with the pickup in the semiconductor sector and consumer demand remaining strong.

 

Source: https://forexmalaysia.com.my

 

Budget 2025 will likely support continued growth, and while the US presidential election may introduce short-term volatility, it is unlikely to derail Malaysia’s long-term growth prospects.

Some also believe the ideal and stable exchange rate based on long-term fundamentals would be RM4.20 to RM4.40 against the greenback.

 

The primary difference between the depreciated standing of the ringgit in February and its current level is expectations related to the US federal funds rate (FFR) cut. If the FFR cut is bigger than expected, then there are growing expectations for an appreciation. But appreciation (of the ringgit) currently is linked to expectations rather than real economic factors. Nothing has really changed in the real economy since early 2024. Some observe that export figures have remained robust despite the appreciating ringgit. But this is probably export of finished electronic goods.

 

So, is it a market anomaly or a correction? Correction to an extent and anomaly if currency traders change their expectation. The Madani Government must put in place reforms, reduce the differential with FFR, encourage investments, reduce bureaucracy, sustain domestic consumption and keep inflation in check! Sounds like a tall order, but the reality is we are competing in the global marketplace.

 

Reference:

Gaining ground in the region, Keith Hiew, Star Biz7, The Star, 5 October 2024