Ringgit up 6% against Singdollar; poised to sustain rally after best quarter in 50 years

KUALA LUMPUR – The Malaysian ringgit is poised to extend its rally after what is likely to be its best quarter since 1973, if the outlook for interest rates is any guide.

The ringgit has risen more than 12 per cent against the US dollar so far in this quarter, making it the best-performing emerging market currency. Against the Singapore dollar, the ringgit is up 6 per cent from 3.4762 per Singdollar on June 28 to 3.2584 on Sept 20.

Narrowing rate differentials with the US, improving trade performance and attractive asset valuations may help the ringgit strengthen further, analysts said.

Robust economic growth and a potential pickup in consumer prices if the government proceeds to remove some fuel subsidies may keep Bank Negara Malaysia on hold into 2025 even as other central banks start to lower borrowing costs.

Foreign investor flows and further conversion of foreign currency deposits will also support the ringgit.

“Malaysia’s current account surplus, neutral central bank stance and stable fundamentals may help with further gains in the light of dollar weakness,” said Sumitomo Mitsui Banking Corp head of Asia macro strategy Jeff Ng. “This is particularly so if markets expect more rate cuts by the US, reducing yield differentials between the US and Malaysia.”

The ringgit has been on a tear since April after a rebound in exports and efforts by the central bank to encourage state-linked companies to repatriate overseas investment income.

The rally picked up steam in this quarter as investors bet on South-east Asian winners amid the prospect of policy easing by the US Federal Reserve.

Global funds have poured a cumulative US$2.5 billion (S$3.2 billion) into the nation’s bonds in July and August, and bought US$1.2 billion of local equities since the end of June, according to data compiled by Bloomberg. 

The ringgit would also benefit from a rotation into Asia after foreign investors were overweight on Latin American currencies over the past year, according to BNP Paribas strategist Chandresh Jain.

“This flow should continue for some time,” he said.

The ringgit was down 0.1 per cent against the greenback at 4.2055 per US dollar at around 5pm on Sept 23. It was up 0.1 per cent against the Singdollar at 3.2545.

Market indicators suggest the current surge in the ringgit may be stretched, signalling a potential consolidation in the near term. Traders will be keeping a close eye on the country’s budget announcement in October for its progress on subsidy reforms and fiscal deficit.

On a longer-term basis, “there is no doubt that the ringgit valuation is attractive and cheap, based on effective exchange rate”, said Bank of New York Mellon strategist Wee Khoon Chong. BLOOMBERG