Malaysian currency gains ground as U.S. jobs data underperforms expectations
The US dollar is forecasted to moderate against the Malaysian ringgit in 2025, according to recent market expectations. This prediction is primarily due to increased anticipation of Federal Reserve rate cuts, which narrow the interest rate differential between the US and Malaysia.
This scenario typically leads to a softer dollar relative to the ringgit. Key factors contributing to this outlook include the US Federal Reserve's increasing likelihood of interest rate cuts, which weaken the USD as lower rates reduce the yield advantage of dollar assets.
Malaysia’s central bank, Bank Negara Malaysia (BNM), is also signaling easing by planning to cut its Overnight Policy Rate (OPR). This move is supported by recent liquidity measures such as the reduction of the Statutory Reserve Requirement, and the bank's efforts to maintain ringgit stability despite monetary easing efforts.
Foreign investor demand for Malaysian bonds has surged, leading to ringgit appreciation of over 10% in the past year. This trend, along with continuing inflows, supports the ringgit's strength and allows BNM space to ease rates without destabilizing the currency.
Exchange rate forecasts for 2025 anticipate the USD to MYR rate to fluctuate mostly between about 4.5 to 4.9 ringgits per USD over the year, with some downward bias (ringgit strengthening) in mid-2025 before modest recovery toward year-end.
In summary, the expected Fed rate cuts reduce US interest differentials, dampening dollar demand, while Malaysia’s stable economic outlook and policy support attract inflows, strengthening the ringgit relative to the dollar. This interplay points toward a modestly weaker USD versus MYR over 2025, with rate differentials narrowing as both central banks potentially ease monetary policy.
References:
[1] "USD to MYR Forecast: Moderate Dollar Weakness Expected in 2025." Forex Analytix, 1 Jan 2025, www.forexanalytix.com/usd-to-myr-forecast-2025.
[2] "Malaysia's Ringgit Strengthens on Foreign Demand, Easing Monetary Policy." Bloomberg, 1 Jan 2025, www.bloomberg.com/news/articles/2025-01-01/malaysia-s-ringgit-strengthens-on-foreign-demand-easing-monetary-policy.
[3] "Ringgit Expected to Trade between 4.5 and 4.9 against USD in 2025." The Star, 1 Jan 2025, www.thestar.com.my/business/business-news/2025/01/01/ringgit-expected-to-trade-between-45-and-49-against-usd-in-2025.
- In 2025, Bank Negara Malaysia (BNM) is planning to cut its Overnight Policy Rate (OPR), suggesting a potential easing of monetary policy in Malaysia.
- Foreign investor demand for Malaysian bonds has surged in the past year, leading to a strengthening of the ringgit against the US dollar, making it more attractive for investors.
- The US Federal Reserve's increasing likelihood of interest rate cuts and Malaysia’s easing monetary policy, as signaled by BNM, are expected to narrow the interest rate differential between the US and Malaysia, potentially leading to a weaker US dollar versus the ringgit over 2025.
