MALAYSIA: The Malaysian ringgit opened higher against the US dollar on Wednesday (March 19) as markets await the US Federal Reserve’s latest interest rate decision, with a dovish stance expected from the central bank. At 8 am, the ringgit strengthened to 4.4405/4.4480 (S$1.3347/1.3369) against the dollar, compared to Monday’s close of 4.4450/4.4490.
According to Bank Muamalat Malaysia Bhd’s chief economist, Afzanizam Rashid, investors are expecting the Federal Reserve to signal multiple rate cuts this year, which has contributed to the ringgit’s gains. “The Fed might lean toward more rate cuts, with markets anticipating three this year,” he was quoted as saying by Free Malaysia Today (FMT).
The two-day Federal Open Market Committee (FOMC) meeting has been underway since Tuesday (March 18), with a final decision expected later on Wednesday. Traders are closely watching the outcome, as it could shape global market sentiment and influence emerging-market currencies like the ringgit.
Mixed performance against other currencies
While the ringgit gained strength against the US dollar, it showed a mixed performance against other major and regional currencies, as reported by FMT.
Against the euro, the local currency weakened, trading at 4.8566/4.8648, down from 4.8455/4.8499 at Monday’s close. It also depreciated against the British pound, sliding to 5.7576/5.7628 from 5.7404/5.7463. However, the ringgit gained against the Japanese yen, rising to 2.9720/2.9772 from 2.9896/2.9925.
Among ASEAN currencies, the ringgit was mostly higher. It edged down slightly against the Singapore dollar at 3.3360/3.3421, compared to 3.3351/3.3383 previously. However, it strengthened against the Thai baht, trading at 13.1961/13.2263, up from 13.2213/13.2391. The ringgit also made modest gains against the Indonesian rupiah and Philippine peso, reflecting positive sentiment in regional markets.
US Treasury yields signal cautious market sentiment
In the US bond market, Treasury yields showed a mixed trend, reflecting cautious sentiment among investors ahead of the FOMC’s decision. The 10-year US Treasury yield fell by two basis points to 4.18%, while the two-year note remained steady at 4.04%, as reported by FMT.
A decline in longer-term yields suggests that investors expect looser monetary policy and potential rate cuts, which could lead to more liquidity in financial markets. However, the steady short-term yield indicates that some uncertainty remains regarding the timing and extent of the Fed’s rate adjustments.
How a Fed rate cut impacts investment and stability
The Federal Reserve’s interest rate decisions have significant implications for global markets, including emerging-market currencies like the ringgit. According to Investopedia, the federal funds rate is a key monetary policy tool that influences inflation, borrowing costs, and economic growth.
When the Fed lowers interest rates, borrowing becomes cheaper, encouraging businesses to invest and consumers to spend more. This often leads to higher stock market activity and increased capital flows into emerging markets, including Malaysia. A weaker US dollar following a rate cut could also boost demand for regional currencies like the ringgit, making Malaysian assets more attractive to foreign investors.
However, excessively low rates can fuel inflation and lead to overheating in financial markets. If inflation rises too quickly, the Fed may eventually need to raise rates again, potentially reversing earlier gains in emerging-market currencies.
For now, market sentiment leans towards a more accommodative policy stance, which could provide short-term support for the ringgit and help stabilise capital flows into Malaysia.
Outlook for the ringgit
The ringgit’s near-term movement will largely depend on the Fed’s tone and forward guidance in its announcement later on Wednesday. If the FOMC signals a strong likelihood of multiple rate cuts in 2025, the ringgit could see further gains against the US dollar.
However, uncertainties remain, particularly regarding global trade tensions, China’s economic slowdown, and Malaysia’s monetary policy stance. Bank Negara Malaysia’s approach to interest rates will also play a role in determining the ringgit’s strength in the months ahead. For now, all eyes remain on the Fed’s decision, which could set the tone for currency markets in the coming weeks.
Read also: Malaysian ringgit faces pressure amid trade tensions and potential rate cuts
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