Reversal possible for ringgit after recent rally
PETALING JAYA: As the ringgit hits a seven-month high against the weakening US dollar, analysts say the local currency still has legs to run.
The local currency touched RM4.20 against the greenback yesterday. Barely a month ago, the exchange rate was nearing RM4.50 per US dollar.
Despite the recent strength, the ringgit's trajectory will remain vulnerable to shifts in global risk sentiment and data surprises.
SPI Asset Management managing director Stephen Innes told StarBiz that a reversal cannot be ruled out.
'For now, the path of least resistance is a stronger ringgit, firmer equities and a little more global confidence in Asia's trade deal script,' he said.
Innes explained that the ringgit's gains reflect a larger regional shift as investors re-enter Asian markets on expectations of easing trade tensions and a weaker greenback.
'What we're seeing across Malaysian markets fits neatly into a broader risk-on, dollar-light narrative that's been building steam since the first whiff of trade détente,' he said in a written response.
'Cross-asset flows have been eerily predictable on the Asia open: dump the dollar, chase gold.'
While part of the ringgit's rally is technical – driven by exporters' front-running foreign exchange strength ahead of settlements – Innes believes there is a deeper structural story at play.
'I'd argue traders are pricing in the possibility of a coordinated, even if unspoken, regional ceasefire on competitive devaluations,' he said.
'Not quite a 'Mar-a-Lago Accord,' but certainly a tacit nod toward a slightly weaker US dollar as part of trade normalisation.'
Innes said Malaysia's 'surprisingly firm growth data and continued tech sector resilience' have further supported the currency and attracted foreign inflows into bonds and equities.
'You've got the perfect cocktail for foreign inflows into both the bond markets, and the local bourse,' he said.
Foreign investors returned to Malaysian bonds in March with RM2.8bil in net inflows, reversing the RM1.7bil outflow recorded in February, even as they withdrew RM4.7bil from equities amid ongoing geopolitical and trade concerns.
Foreign holdings of Malaysian Government Securities or MGS and Government Investment Issues or GII rose to 21% in March – the highest level since August 2024.
More recently, sentiment has also improved on the equity front. Foreign investors net bought RM853.8mil worth of equities last week, following RM332.3mil in the week before – marking the first back-to-back weekly inflows since September 2024.
Still, Innes warned that global markets remain highly sensitive to external developments. 'This market trades every headline like it's a referendum on global risk,' he said. 'While the tariff bogeyman is back in the closet for now, I wouldn't be shocked if the next data hiccup or policy swerve shakes things up again.'
Echoing similar concerns, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that recent weakness in the US dollar may reflect deeper concerns over the credibility of US economic policy.
'My sense is that there seems to be a confidence issue with regards to the US dollar.
'Typically, the US dollar would rise during heightened economic uncertainties as the greenback is always deemed as the safe haven. And the fall in the US dollar appears in tandem with the Trump administration measures on tariff,' he said in a written reply.
'On that note, there seems to be weak confidence in the US economy and the tariff measures are set to take a toll on the US economy due to higher cost of doing business and disruption in the supply chains.'
Mohd Afzanizam added that 'the way I see it, it appears that the de-dollarisation has been accelerated,' as more countries seek alternatives for trade settlements.
From a policy standpoint, he said, various jurisdictions have started to diversify away from the greenback, including Malaysia's Local Currency Settlement Framework with Thailand and Indonesia, and the increased use of the yuan and ringgit in China-related trade.
While a reversal in the dollar's decline is possible, Mohd Afzanizam cautioned that inconsistent policy signals from Washington could further dent confidence. 'Will the US dollar decline be reversed? I suppose it can if the Trump administration decides to relax the tariffs. But this could also run the risk of policy inconsistencies which might jeopardise the confidence. So either way, it seems a bearish view on the US dollar.'
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