Ringgit eyes RM4 comeback by year-end

KUALA LUMPUR: The ringgit is gaining momentum towards the psychologically important RM4 level against the US dollar, buoyed by Malaysia's electronics boom, foreign capital inflows and growing demand for the local currency.

Economists and market analysts see room for further appreciation by year-end, although they caution that the sustainability of the rally will depend heavily on US monetary policy and the strength of Malaysia's economic fundamentals.

CIMB Securities Sdn Bhd expects the ringgit to trade between RM4 and RM4.10 against the greenback through year-end, with a bias towards the stronger end of the range.

The ringgit began 2026 at RM4.05 against the US dollar and strengthened to around RM3.89 in late February, an eight-year high, before reversing course to hit RM4.15 on June 22, its weakest level this year.

The mid-year decline was driven partly by expectations of prolonged high US interest rates and tensions in the Middle East, although the local currency has since recovered to around RM4.06 at press time.

SPI Asset Management managing partner Stephen Innes said the ringgit's gains reflected more than US dollar weakness, pointing to Malaysia's position in the artificial intelligence (AI)-driven semiconductor boom, stronger economic data and support from an appreciating Chinese yuan.

"The ringgit has also caught a useful tailwind from the appreciation of the Chinese yuan, which has helped improve sentiment toward regional currencies.

"So while the broader US dollar cycle remains an important driver, I wouldn't dismiss the ringgit's appreciation as simply a dollar weakness story. Malaysia has some genuine fundamental advantages supporting the currency," he said.

Economist Doris Liew said stronger economic growth, investment inflows and recovering electronics exports had also improved investor confidence.

However, she cautioned that the ringgit remained highly sensitive to US monetary policy and global capital flows, making its recovery partly dependent on external conditions.

"A narrowing interest-rate differential with the US makes Malaysian assets relatively more attractive, but this also means that part of the ringgit's recovery depends on external conditions rather than structural improvements at home," she said.

ELECTRONICS EXPORTS UNDERPIN GAINS

CIMB Securities expects Malaysia's electronics exports to grow 35 per cent year-on-year in the fourth quarter of 2026, following a 46 per cent increase in the preceding quarter.

Growth is projected to moderate to 10.2 per cent in 2027, largely reflecting a higher comparison base rather than weaker underlying demand.

"The electronics-led trade surplus should provide more durable support in the fourth quarter 2026 and beyond, while stronger services receipts, foreign bond inflows and seasonal foreign exchange conversions could reinforce near-term gains," it said in a report.

The research house said continued investment in AI infrastructure should sustain demand for electronics and keep export receipts elevated, helping to widen Malaysia's trade surplus despite higher imports.

Innes said electrical and electronics products accounted for nearly half of Malaysia's merchandise exports, making the sector an important driver of the ringgit's performance.

"Even if growth moderates from 46 per cent to 35 per cent, those are still exceptionally strong numbers and should continue to provide meaningful support for Malaysia's external balances," he said.

Liew said stronger semiconductor demand would generate additional foreign currency earnings, some of which could be converted into ringgit.

However, she cautioned that the industry's reliance on imported intermediate inputs and foreign technology meant stronger exports would not necessarily translate into equivalent gains in net foreign exchange inflows or domestic value creation.

EXPORTER CONVERSIONS OFFER NEAR-TERM BOOST

CIMB Securities said year-end conversions of export receipts and overseas investment income could provide additional support for the ringgit.

It noted that business foreign currency deposits, measured in US dollar-equivalent terms, had risen from US$40.7 billion to US$48.5 billion before declining to US$42 billion in September.

The decline could indicate greater conversion of accumulated export proceeds, although foreign currency payments might also have contributed.

Innes said exporters tended to convert their US dollar earnings more quickly when the greenback weakened, creating additional demand for ringgit.

"Historically, Malaysian exporters have tended to be more comfortable holding on to their US dollar receipts when USD/MYR is rising, but they become quicker to convert those earnings back into ringgit when the dollar starts losing ground.

"There is also a longstanding tendency among parts of the export community to remain cautious about the ringgit, which can leave a reasonable stock of foreign currency earnings available for conversion when sentiment shifts.

"That creates the potential for a self-reinforcing move, where a stronger ringgit encourages additional exporter selling of US dollars," he said.

He added that such conversions could support the ringgit into early 2027 if the broader US dollar trend remained favourable, although they were more likely to reinforce an existing appreciation trend than drive sustained gains on their own.

Liew, however, said the impact of year-end conversions was likely to be temporary rather than a lasting driver of the currency's performance.

FOREIGN BOND INFLOWS PROVIDE SUPPORT

CIMB Securities expects foreign portfolio flows to become more supportive as equity selling eases and demand for Malaysian bonds strengthens.

Foreign equity selling slowed to RM3.4 billion in the third quarter of 2026 from RM5.5 billion in the preceding quarter, while foreign ownership of Malaysian equities reached a record low of 17.8 per cent in September.

The research house said lower US Treasury yields could narrow Malaysia's yield disadvantage and sustain foreign investor interest in domestic bonds.

US MONETARY POLICY REMAINS KEY RISK

Despite the favourable domestic outlook, Innes said a more hawkish-than-expected US Federal Reserve remained the biggest risk to the ringgit's recovery, as it could revive demand for the US dollar.

"For USD/MYR to make a convincing move toward the psychologically important 4.00 level, I think we would need to see a meaningful repricing of December Fed expectations.

"Markets are still assigning roughly a two-thirds probability to another rate hike in December. Ideally, I would want to see those odds fall below 40 per cent before becoming substantially more confident about a sustained move toward 4.00.

"That would probably require clearer evidence that the US economy is losing momentum, particularly in the labour market, allowing Treasury yields and the dollar to move lower," he said.

Liew said renewed US dollar strength, slower-than-expected easing of US interest rates and a reversal in global semiconductor demand could derail the ringgit's recovery.

Geopolitical tensions and renewed trade restrictions could also disrupt Malaysia's export momentum, given its integration into US-China technology supply chains.

"The semiconductor boom is providing Malaysia with a favourable external environment, but electronics is a cyclical industry," she said.

CIMB Securities also warned that stronger-than-expected US employment data could revive expectations of further Federal Reserve rate hikes, while renewed tensions in the Middle East could increase safe-haven demand for the greenback.

A retreat in expectations of Bank Negara tightening could also weaken interest-rate support for the ringgit, it added.

Liew said sustaining the ringgit's recovery into 2027 would ultimately require stronger domestic productivity and higher-value investments rather than relying solely on favourable global conditions.