Ringgit remains resilient as support from the U.S. dollar is expected to fade

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Ringgit remains resilient

Highlights

The U.S. dollar is expected to lose momentum, with the Fed raising its policy rate to 4.00% and another 0.25% hike targeted for December before rates remain unchanged through 2027.
The ringgit remains resilient, with USD/MYR trading around 4.03–4.08 from August to October, supported by Malaysian companies’ conversion of export earnings and domestic demand.
Malaysia’s economy grew 5.3% yoy in Q3 2026, beating market expectations, with 2026 GDP growth projected at 5.2% and the deficit expected to fall to 3.3% of GDP in 2027.

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

Global rate outlook and support for the ringgit

As reported by The Edge Malaysia, the U.S. dollar’s recent rally is not expected to last, as markets are currently pricing in more interest rate adjustments than analysts had anticipated. The Federal Reserve raised its policy rate by 0.25% to 3.75%–4.00% in September, held rates steady in October, and is expected to deliver another 0.25% hike in December before keeping rates unchanged throughout 2027.

Among major currencies, monetary policy divergence remains a key driver. The RBA raised rates to 4.60%, with another 0.25% hike expected in the fourth quarter. The ECB is also seen raising rates by 0.25% in December and February, while the BoJ raised its policy rate by 0.25% to 1.25% in September. This supports a diversified currency approach rather than taking an overly aggressive directional position against the U.S. dollar.

In Asia, performance has also diverged, with strong exports and policies supportive of stability underpinning the KRW and RMB. The ringgit has also shown resilience, despite trading unevenly, with USD/MYR trading around 4.03 at the end of August before moving back towards 4.08 in October. A key source of support has been corporate foreign exchange conversion, as Malaysian exporters and companies repatriate overseas earnings and sell U.S. dollars to buy ringgit, adding to demand for the local currency.

Malaysia’s economic fundamentals and lingering risks

Malaysia’s domestic backdrop remains supportive of the ringgit. The economy grew 5.3% year on year in the third quarter of 2026, according to preliminary estimates, beating market expectations of 5.1% and analysts’ forecasts of 4.9%. This marked a fifth consecutive quarter of growth above 5% and brought cumulative growth for the year to 5.5%.

Growth was broad-based, with the manufacturing sector expanding by more than 7% on the back of an AI-related export boom and high commodity prices, alongside continued support from the services and construction sectors. GDP growth is projected at 5.2% for 2026, above Bank Negara Malaysia’s forecast of around 5%, while growth in 2027 is expected to be around 5%. Fiscal consolidation is also expected to boost confidence, with the deficit forecast to narrow to 3.3% of GDP in 2027 and 3% by 2028.

Nevertheless, the ringgit still faces several constraints. Malaysia’s policy rate is currently below the Fed funds rate, reducing the appeal of ringgit carry trades and potentially moderating the conversion of foreign currency earnings into ringgit, while higher oil prices add risk through Malaysia’s fuel subsidy bill. Overall, USD/MYR is expected to remain driven primarily by the global macro environment, but the balance of risks for the ringgit remains moderately positive, supported by stronger-than-expected domestic growth, fiscal discipline and the potential for companies to sell U.S. dollars, although any appreciation is likely to be gradual and uneven.

As we reported earlier, Malaysia’s foreign currency deposits fell 8.6% to RM308 billion in August, reflecting increased conversion of export earnings into ringgit.

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