MALAYSIA: The ringgit opened higher against the US dollar following the Federal Open Market Committee’s (FOMC) decision to maintain interest rates and slow the pace of its balance sheet runoff. The move, widely interpreted as a dovish shift, has boosted investor sentiment towards emerging market currencies, including the ringgit.
According to Free Malaysia Today (FMT), the local currency appreciated to 4.4200/4.4305 (S$1.3304/1.3338) against the US dollar at 8 am, strengthening from Wednesday’s close of 4.4330/4.4400. Analysts suggest that the Fed’s cautious approach to monetary policy has supported demand for riskier assets, benefiting the ringgit and other regional currencies.
Analysts: Fed’s steady approach boosts market confidence
Bank Muamalat Malaysia Bhd’s chief economist, Afzanizam Rashid, noted that the Fed’s decision to hold rates and reduce the pace of its balance sheet runoff, cutting it from US$25 billion (S$33.3 billion) to US$5 billion, reinforces expectations of a more accommodative monetary stance.
“During the press conference, Fed Chair Jerome Powell indicated that tariff-driven inflation is likely to be transitory. He also acknowledged rising recession risks but said they were not at an alarming level,” Afzanizam said, as quoted by FMT.
He added that the latest quarterly projections indicate the Fed Funds Rate remains on track for two quarter-point cuts this year, with further reductions expected in 2026 and 2027. This has led to a rally in equities and a decline in US Treasury yields, both of which are supportive of the ringgit.
“This should be positive for the ringgit, as the Fed has demonstrated its confidence that the US economy can withstand a high degree of uncertainty,” Afzanizam explained. He also highlighted that the Fed’s measured approach allows investors time to reassess market conditions, improving overall risk appetite.
Impact on Malaysia’s economy and trade
The ringgit’s strengthening against the US dollar comes as a positive development for Malaysia, particularly in managing imported inflation and maintaining stability in capital flows. A stronger ringgit helps ease costs for businesses that rely on imported goods and raw materials, potentially supporting domestic price stability.
However, analysts caution that Malaysia’s export sector could face challenges if the ringgit strengthens significantly, as it may impact the competitiveness of Malaysian goods in global markets. The balance between currency strength and trade competitiveness will remain a key focus for policymakers.
Ringgit’s performance against other currencies
While the ringgit strengthened against the US dollar, its performance against other major currencies was mixed. According to FMT, the local note rose against the euro, trading at 4.8231/4.8346 compared to 4.8324/4.8400 the previous day. However, it weakened against the British pound, slipping to 5.7504/5.7641 from 5.7496/5.7587. It also declined against the Japanese yen, trading at 2.9774/2.9847 from 2.9595/2.9643.
Against regional currencies, the ringgit saw broader gains. It edged up against the Singapore dollar to 3.3248/3.3330 from 3.3251/3.3306 and strengthened against the Thai baht to 13.1622/13.2002 from 13.1778/13.2056. The ringgit also advanced against the Indonesian rupiah and Philippine peso, reflecting improved investor sentiment across ASEAN markets.
Read related: Ringgit opens higher against US dollar ahead of key Fed interest rate decision
Global monetary policy remains a key influence
Despite the ringgit’s recent appreciation, its long-term trajectory will continue to be influenced by global monetary policy shifts. Investors will closely watch upcoming US economic data and the Fed’s future decisions, as any deviation from current expectations could impact capital flows and currency markets.
For Malaysia, maintaining economic resilience and ensuring balanced growth will be crucial as global uncertainties persist. While the ringgit’s strengthening reflects positive investor sentiment, policymakers will need to navigate potential trade-offs to sustain economic momentum.
Read also: Bursa Malaysia opens lower as market awaits US interest rate decision
Featured image by Vecteezy (for illustration purposes only)