Ringgit poised to strengthen to RM3.90 against dollar by year-end: Analysts

The Malaysian ringgit is poised for a significant strengthening, potentially reaching RM3.90 against the US dollar by the end of the year. This optimistic forecast hinges on the US Federal Reserve adopting a less aggressive stance on interest rates, which could weaken the dollar. Dr. Paul Anthony Maria Das, a senior lecturer at Taylor's University, explained that a decrease in US interest rates and falling Treasury yields would narrow the return gap between US and Malaysian assets. This would diminish the dollar's appeal and boost demand for regional currencies like the ringgit.

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The expectation of the local currency strengthening is driven by the possibility of the US dollar becoming weaker if interest rates in that country no longer increase and US Treasury bond yields continue to fall.

Domestically, Malaysia's robust economic foundations provide further support. Stable economic growth, strong performance in the electrical and electronics (E&E) sector, increased investment, a recovering tourism industry, and well-controlled inflation all contribute to a positive outlook. These factors are expected to enhance investor confidence in Malaysian assets, attracting foreign direct investment, export earnings repatriation, and conversions of foreign currency deposits into ringgit.

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From a domestic perspective, Malaysia's still strong economic fundamentals also support the ringgit's prospects. Among them are stable economic growth, the performance of electrical and electronic (E&E) exports, increased investment, recovery in the tourism sector, and inflation that remains under control.

However, achieving the RM3.90 target remains contingent on the strength and duration of foreign capital inflows. External factors are identified as the primary drivers of the ringgit's performance and the FTSE Bursa Malaysia KLCI, given Malaysia's open economy heavily reliant on international trade. Global capital flows, US monetary policy, dollar strength, crude oil prices, China's economic performance, and geopolitical developments are closely monitored.

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External factors continue to be the main driver of the ringgit's performance and the FTSE Bursa Malaysia KLCI (FBM KLCI) as Malaysia is an open economy and heavily dependent on international trade.

Adding to the positive sentiment, Dr. Mohd. Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, noted that the ringgit opened slightly higher due to investor caution regarding geopolitical tensions in the Strait of Hormuz. He also highlighted the Monetary Policy Committee's statement affirming Malaysia's strong economic fundamentals. The significant increase in E&E exports, he added, demonstrates Malaysia's benefit from global investments in artificial intelligence and technology, further bolstering investor confidence and supporting the ringgit's appreciation.

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The ringgit was also supported by the Monetary Policy Committee (MPC) statement on Thursday, which indicated that Malaysia's economic fundamentals are in a stronger position.