Why the ringgit was world’s top performing currency last week, and what this means for Malaysia

KUALA LUMPUR, Sept 23 — The ringgit climbed to a 30-month high of 4.1815 against the US dollar on Friday to end the week as the world’s top-performing currency as it rode on the US Federal Reserve’s unexpectedly large interest rate cut that sparked euphoria for markets around the world.

The Malaysian currency surged to its highest level against the greenback since March 2022 after the 50 basis points rate cut in the US that exceeded initial forecasts, continuing a rally that began in January this year.

For the year to date, the ringgit has regained over 11 per cent of its value against the US dollar.

What is pushing the ringgit up?

The most recent bump is mostly caused by the Federal Reserve policy rate cut but the ringgit has been strengthening against the dollar since January this year, which analysts have attributed to growing investors’ confidence in the Malaysian economy as foreign investments drive demand for the currency.

Fiscal reforms that included the diesel subsidy recalibration could have given assurance about the government’s commitment to narrow its deficit while major economic blueprints such as the Energy Transition Roadmap and a new Industrial Master Plan had bolstered inflows into local companies.

Global funds poured nearly half a billion ringgit in Malaysian stocks as of August this year, Bloomberg reported last month.

Some analysts have also attributed the currency’s strong performance to the stable political leadership, as Prime Minister Datuk Seri Anwar Ibrahim has managed to allay fears that his coalition government of political parties that included former rivals could disintegrate, keeping it solidly intact until today.

A stable government means investors need not worry about disruptions to policies and projects as they plan their investments.

Is the ringgit also doing better against other currencies?

Ringgit’s performance has been a surprise for analysts given it was among currencies that fared poorly in 2023. Still, Bank Negara Malaysia maintained that the ringgit’s rout last year did not reflect the real strength of the Malaysian economy, and it did predict that the currency would improve by this year.

The currency has performed well against a basket of major currencies, including the euro and Singapore dollar. On Friday, it gained versus the euro to 4.6878/6950 and edged up against the Singapore dollar to 3.2507/2559 from 3.2567/2632 at Thursday’s close.

The ringgit was at 3.4326 against the Singapore dollar in the same month last year. Across year, the Malaysian currency has clawed back over 5 per cent of its value against its Singaporean opposite.

It has also improved over 12 per cent against the Canadian dollar, nearly 9 per cent against the Japanese yen, and over five per cent against the Australian dollar, among others.

Who will benefit from the ringgit’s rally?

Mostly importers who trade heavily in US dollars such as the automobile industry, transport, consumer, media, healthcare segments and even food and beverage.

AmInvestment Bank Research said in an August 2 note that the stronger ringgit could lower the cost of dollar-priced imported content although it would take a few months before the positive effect will be felt since stocks are not priced on spot market rates.

The same note forecasted positive earnings for companies like Berjaya Food, Nestle and chocolate products maker Guan Chong Sdn Bhd, which rely on the dollar to buy raw ingredients. Whether this would translate to cheaper food products is unclear.

A strong ringgit would also relieve some pressure off companies with heavy dollar denominated debt. Malaysia Airports Holdings Bhd, MISC Bhd, Sime Darby Plantation Bhd and Axiata Group Bhd are among companies that had raised debt in US dollar and other foreign currencies.

The flipside is that the stronger ringgit will make Malaysian exporters less attractive to buyers.