The Malaysian Ringgit (MYR) outperformed regional peers, appreciating by 0.4% against the US Dollar (USD) following Bank Negara Malaysia's (BNM) reintroduction of a 2024-style foreign exchange support measure. This policy encourages the repatriation and conversion of offshore earnings by government-linked corporates, aiming to bolster the currency's stability in the face of external pressures [1].
According to Lloyd Chan at MUFG, the USD/MYR pair has retraced from around the 4.15 level, suggesting that the policy move may already be having an effect. However, Chan cautions that the sustainability of these gains is likely to be less robust than in 2024, due to a less supportive macroeconomic backdrop. Specifically, expectations of further US Federal Reserve tightening and strong US economic data continue to underpin the dollar, resulting in unfavorable rate differentials for most Asian currencies, including the ringgit [1].
The report highlights that capital flow dynamics under a 'higher-for-longer' US rate environment could significantly influence Asian foreign exchange performance. While BNM's policy support is expected to help stabilize the ringgit in the near term, the scope for sharp appreciation is seen as limited. Unlike previous periods when markets anticipated Fed easing, the current environment is characterized by expectations of further rate hikes, which may continue to exert downward pressure on the ringgit [1].
CONCLUSION
BNM's renewed FX support measures have provided short-term stability for the Malaysian ringgit, resulting in a 0.4% gain against the US dollar. However, ongoing external pressures and expectations of further Fed tightening are likely to cap further appreciation, limiting the ringgit's upside potential.