SINGAPORE – The Malaysian ringgit is vulnerable to a drop towards 2023’s low as concerns over the fragility of Prime Minister Anwar Ibrahim’s government add to the currency’s headwinds.

The ringgit’s advance in the last two months of 2023 proved fleeting as apparent attempts to oust Datuk Seri Anwar unnerved investors. The currency is about 3 per cent away from a 25-year low reached in October.

The political chatter is adding to the pressure on the ringgit – emerging Asia’s worst performer in 2023 – as Malaysia grapples with a recent slide in oil prices and falling exports.

While Mr Anwar has dismissed the alleged plots to bring down his administration, concerns over political stability prevail. The South-east Asian country had seen four different premiers in as many years before Mr Anwar rose to power in 2022.

“The Malaysian ringgit is cheap, no doubt, but there’s no catalyst for a revaluation shift,” said Mr Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets in Singapore. “There are still no exciting stories coming out of Malaysia, and the coalition government appears still fragile.”

He expects the currency to slip about 2 per cent from Jan 12’s close to 4.75 versus the US dollar in the first half of 2024. In October, the ringgit slumped to nearly 4.8, the weakest since January 1998, the height of the Asian financial crisis.

The Singapore dollar has risen 0.4 per cent against the ringgit in January, based on Jan 12’s close. It was trading up 0.25 per cent to 3.5006 ringgit as at 4.03pm on Jan 15.

Uncertainty over how incarcerated former premier Najib Razak’s application for a royal pardon would play out looms over the market.

A six-member board headed by the Malaysian King will meet in January to decide on the matter.

The ringgit has slid more than 1 per cent in January, adding to losses from the previous three years.

Near-term weakness in oil prices is another “headwind to the ringgit via the trade channel, given that Malaysia is a net energy exporter”, said Mr Nicholas Chia, a macro strategist at Standard Chartered Bank.

The slow recovery in China, Malaysia’s largest trading partner, is also hurting the ringgit. Weaker-than-expected purchasing managers’ index data showed that growth momentum in Asia’s largest economy has declined further, while any policy easing by the Chinese central bank may have little impact.

Investors will be keeping a close eye on Malaysia’s trade data due on Jan 19 after trade surplus in November declined to the lowest level since May 2020. The government will also publish advance gross domestic product data on the same day.

Bets that the United States Federal Reserve will start cutting interest rates as soon as March may cushion the blow on the ringgit. However, this tailwind may count for little in the coming days, given pushbacks by some policymakers.

Federal Reserve Bank of Atlanta president Raphael Bostic, who is voting on monetary policy decisions in 2024, has said rate cuts may start only in the third quarter. BLOOMBERG