Ringgit set to extend gains as US fundamentals weaken

KUALA LUMPUR: The ringgit is poised to extend its gains against the US dollar next week, buoyed by weakening US fundamentals, easing trade tensions, and stronger domestic economic resilience.
The local currency has already strengthened against major and Asean currencies, and Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the trend is likely to persist as economic momentum in the US continues to lose steam.
"We expect this trend to hold in the near term, driven by signs of a slowing US economy as business and consumer sentiment continue to weaken," he told Business Times.
Afzanizam added that heightened uncertainty over US trade policies is further dampening confidence among businesses, prompting a reassessment of the greenback's global standing.
"In some ways, the US dollar's dominance in the global economy is being revisited. This shift could favour emerging market currencies, including the ringgit, in the short to medium term," he said.
Echoing this view, SPI Asset Management managing partner Stephen Innes said that foreign appetite for Malaysian assets remains strong, further supporting the local currency.
"The ringgit is finally catching a break. With the US dollar on the back foot, tariffs de-escalating, and capital inflows into bonds and FX deposits rising, there is a tangible floor forming under ringgit," he said.
Innes pointed to growing foreign appetite for Malaysian debt, highlighting the 3.3 times bid-to-cover ratio in May's 20-year government investment issue (GII) auction as a signal of revived confidence.
He noted that foreign holdings of local government bonds have risen to 21.5 per cent, reversing a dip recorded in February.
Adding to the ringgit's resilience, foreign currency deposits in local banks have climbed to a record 11.6 per cent of total deposits, offering a buffer against external shocks.
Innes said that while Malaysia is not immune to global economic fragility, it is also not a sitting duck, with the domestic investment cycle now taking the lead.
"If the trade war cools and global risk sentiment remains stable, Malaysia may continue to navigate the delicate balance between global volatility and domestic resilience. The ringgit, for once, has a shot at playing offence," he added.
The ringgit opened higher this morning, extending its gains against the US dollar. At 8am, it stood at 4.2140/4.2335 compared with Thursday's close of 4.2245/4.2295.
The local currency also traded mostly higher against major currencies, gaining ground against the Japanese yen and British pound, though it slipped slightly against the euro.
Among regional peers, the ringgit appreciated across most Asean currencies, including the Singapore dollar, Thai baht, Indonesian rupiah and Philippine peso.
It ended Friday's session at 4.2275 against the greenback.

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