Ringgit rebound set to ride on recovering exports, Fed rate cuts

The Malaysian ringgit is set to extend gains into the remainder of the year as exports recover and the Federal Reserve eventually pivots to interest rate cuts.

The ringgit has been the top performer in Asia against the greenback behind the Hong Kong dollar this quarter, and is forecast to strengthen to 4.65 by the end of 2024, according to a median of economists surveyed by Bloomberg. The ringgit was little changed at 4.7215 as of 2.25 p.m. Singapore time on Friday.

The nation’s central bank has been optimistic over the currency’s outlook. In a statement released Friday, Bank Negara Malaysia noted the ringgit has “significant potential to appreciate and be among the top beneficiaries of US rate cuts.” 

The Malaysian currency has also been supported by a rebound in exports, which in May grew by 7.3% from the previous year, the second straight month of growth. This comes despite continued weakness in the nation’s largest trading partner, China, with the BNM noting the “historically high correlation between the ringgit and the renminbi has declined significantly.” 

Still, there have been headwinds for the currency this year. The ringgit fell to the lowest since 1998 versus the dollar in February —  a move that saw the BNM appeal for state-linked firms to repatriate foreign investment income and convert it into ringgit. 

Fitch Ratings Inc., however, sees those issues dissipatimng toward year-end.

“We expect the negative factors driving the ringgit depreciation, including negative interest-rate differentials, lower exports and portfolio investor sentiment, to wind down in the second half,” analysts including Kathleen Chen and Krisjanis Krustins wrote in a note on Thursday.