Ringgit tops Asia’s currencies, strengthens against dollar this year

The ringgit is Asia’s best-performing currency against the US dollar and the only one to strengthen year-to-date (YTD).

Analysts project that it will maintain its leading position in the region through the second half of 2024.

“YTD, the ringgit is the only Asian currency that has appreciated against the US dollar,” Standard Chartered (StanChart) said, reported NST. 

In July, ringgit increased by 2.8% month-on-month (MoM) to 4.591 against the US dollar, recovering its losses from the first half of 2024 and achieving a slight year-to-date gain of 0.1%.

“The ringgit started the second half of 2024 on the right foot against the dollar,” MIDF Research said.

MIDF Research noted that the ringgit’s broad strength in July coincided with a gradual decline in the US dollar, driven by increasing expectations of rate cuts by the US Federal Reserve.

“The ringgit’s performance against the greenback significantly outperformed most other regional currencies, supported by robust economic fundamentals and renewed foreign interest in the domestic equity market,” MIDF Research said.

The MIDF Trade-Weighted Ringgit Index (TWRI) increased by 1.8% month-on-month to 87.76 in July, reflecting gains against most currencies in the index except for the Japanese yen and Thai baht.

YTD surged by 2.8% as the ringgit recovered against the US dollar.

By the end of July, the MIDF TWRI’s increase was largely supported by the ringgit’s appreciation against several currencies: up 6.8% against the Taiwan dollar, 6.1% against the Japanese yen, and 6.3% against the South Korean won.

MIDF Research forecasted that with the ringgit strengthening past the 4.60 level, it is expected to appreciate further in the second half of the year, potentially reaching 4.43 by year-end, compared to 4.59 at the end of 2023.

The influx of foreign investment into emerging markets, driven by expectations of a Fed rate cut and reduced interest rate differentials, is anticipated to bolster regional currencies, including the ringgit, said MIDF Research.

“However, due to the prolonged strength of the US dollar we estimate ringgit will be averaging higher this year at 4.64 (2023 average: 4.56),” it said.

StanChart forecasts the ringgit will be valued at 4.66 against the US dollar by the end of 2024 and at 4.55 by the end of 2025.

On August 3, the ringgit rose slightly by 30 basis points to 4.5645/5725 against the US dollar, up from 4.5675/5710 the previous day, extending its 10-day rally as investors anticipated potential Fed rate cuts in September.

StanChart attributed the ringgit’s strong performance to authorities’ efforts to engage with key entities, encouraging the repatriation, conversion, and hedging of foreign currency proceeds.

“But we note that underlying fundamentals have also been ringgit-positive,” it added.

This encompasses minimal foreign investment in Malaysia, substantial offshore positioning by residents, a divergence in monetary policy—where Malaysia might be more inclined to raise rates rather than cut them—and an ongoing recovery in tourism.

“That said, we note that the ringgit has recovered significantly in a short period and potential reserve rebuilding may moderate further rallies on a relative basis.

“The US election outcome may also bring some risk to the currency, particularly on any harsh tariff actions on China,” StanChart said.