CIMB expects the ringgit to strengthen to 4.00 against the U.S. dollar by year-end

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CIMB expects the ringgit to strengthen

Highlights

CIMB expects the ringgit to strengthen to 4.00 by year-end, driven by electronics exports and the conversion of overseas earnings.
Malaysia’s electronics exports are forecast to grow 35% year on year in the fourth quarter, supporting trade revenue growth and a stronger ringgit.
Foreign currency deposits fell to U.S.$42 billion in September, while foreign investors’ holdings of Malaysian bonds increased by RM6.2 billion between September and October.

This article was translated from the original. Read the original version by our correspondent here.

CIMB’s forecast and the ringgit’s key drivers

As reported by The Edge Malaysia, CIMB Treasury and Markets Research said in a Nov 5 note that stronger electronics exports are expected to widen Malaysia’s trade surplus, while exporters are likely to convert more of their overseas earnings into ringgit towards year-end.

At 12:30 p.m. on Friday, the ringgit traded at 4.059 against the U.S. dollar, compared with 4.0445 at Thursday’s close. According to the note, the ringgit recorded an average appreciation of 1.1% in November and 1.2% in December over the 2018 to 2025 period, supported by year-end conversions of export proceeds and overseas investment income, although more regular repatriation of funds by GLCs and GLICs could limit this seasonal boost.

CIMB expects Malaysia’s electronics exports to grow 35% year on year in the fourth quarter, after rising 46% in the previous three-month period. Overall, the research firm expects growth to moderate to 10.2% in 2027 from 34.3% this year as the comparison base rises, while investment in artificial intelligence infrastructure continues to support demand.

Foreign capital flows and risks to the forecast

The firm also noted that business foreign currency deposits fell to U.S.$42 billion in September after reaching U.S.$48.5 billion, which may indicate that exporters have begun converting accumulated earnings into ringgit. At the same time, some of those funds may also be used to make payments in foreign currencies.

CIMB said foreign portfolio flows could become more supportive as equity selling eases and demand for bonds strengthens. Foreign investors’ holdings of Malaysian bonds increased by RM6.2 billion between the end of September and the end of October, while foreign investors remained net sellers of equities, although sales slowed to RM3.4 billion in the third quarter from RM5.5 billion in the second quarter.

With BNM already largely priced into domestic yields, lower U.S. Treasury yields could narrow Malaysia’s yield disadvantage and sustain bond inflows even as equity demand remains weak. However, CIMB warned that stronger U.S. employment data could revive expectations of Federal Reserve rate hikes, while renewed escalation of the conflict in the Middle East could prompt investors to shift back into the U.S. dollar.

In our earlier article about the strength of the ringgit among Southeast Asian currencies, we explained that exporters’ conversion of foreign currency proceeds—which is also reflected in the decline in foreign currency deposits—is seen as a key source of support for the ringgit through year-end. We also highlighted the role of strong exports and foreign direct investment inflows as factors that could sustain the ringgit’s momentum, alongside the influence of portfolio flows.

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