KUALA LUMPUR, Jan 13 — The Malaysian ringgit is now forecast to only strengthen slightly to 4.40 against the US dollar by the end of the year, said BMI Research that previously suggested a return to the 3.80 level was possible.

The Fitch Solutions unit said the Malaysian currency gained 2.7 per cent in 2024 but faces headwinds from a higher US terminal rate, which is expected to limit its appreciation.

Short-term outlooks suggest the ringgit will trade between 4.80 and 4.20 versus the dollar by mid-2025 as technical indicators show signs of recovery. The ringgit could fare better on a longer horizon, it said

"Since our previous update in September 2024, our US team has revised upwards their end-2025 and 2026 rate forecasts to 3.50 per cent, from 3.00 per cent previously,” BMI Research said in its forecast.

"This follows Donald Trump’s victory at the US Presidential Elections, which will in turn keep a lid on the ringgit’s appreciation. But other factors will provide support to the ringgit”

Interest rate differentials between the US and Malaysia are anticipated to narrow, benefiting the ringgit as the US Federal Reserve cuts rates further in 2025.

Malaysia’s strong economic growth, with GDP projected to grow 4.7 per cent in 2025, is also expected to boost investor sentiment and support the currency., BMI said.

A sustained current account surplus, though slightly narrowing to 2.3 per cent of GDP, will also underpin the ringgit’s strength.

However, the research firm said risks such as a more hawkish Fed or stronger-than-expected "Trumpflation” could weaken the ringgit and constrain its appreciation.

For a moment last year, the ringgit put in a stellar performance to reach 4.10 against the dollar and was crowned the best-performing currency in Asia.

However, it has since given up most of the gains and is now back to hovering near the 4.50 mark.