Ringgit set to extend gains on recovering exports, Fed rate cuts

SINGAPORE - The Malaysian ringgit is set to extend gains into the remainder of 2024 as exports recover and the US Federal Reserve eventually pivots to interest rate cuts.

The ringgit has been a top performer in Asia against the greenback behind the Hong Kong dollar in the second quarter, and is forecast to strengthen to 4.65 per US dollar by the end of 2024, according to a median of economists surveyed by Bloomberg.

The ringgit was little changed at 4.721 per US dollar as at 2.59pm Singapore time on June 28. It was also unchanged against the Singapore currency, at 3.4781 per Singapore dollar.

Malaysia’s central bank has been optimistic over the currency’s outlook. In a statement released on June 28, Bank Negara Malaysia (BNM) noted that 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 per cent from the previous year, the second straight month of growth. This comes despite continued weakness in the nation’s largest trading partner, China, with BNM noting that the “historically high correlation between the ringgit and the renminbi has declined significantly”.

Still, there have been headwinds for the currency in 2024.

The ringgit fell to its lowest since 1998 versus the US 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, however, sees those issues dissipating towards the 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,” wrote analysts, including Ms Kathleen Chen and Mr Krisjanis Krustins, in a note on June 27. BLOOMBERG