15-1-2024 (KUALA LUMPUR) The Malaysian ringgit is facing vulnerability, with concerns over the stability of Prime Minister Anwar Ibrahim’s government contributing to the currency’s challenges. The ringgit’s recent gains in the final two months of 2023 were short-lived, as apparent attempts to oust Anwar unnerved investors. Currently, the currency is approximately 3% away from the 25-year low it reached in October.
Political uncertainties surrounding Anwar’s administration are intensifying pressure on the ringgit, which was the worst-performing currency in emerging Asia in 2023. Malaysia is grappling with a decline in oil prices and falling exports, adding to the economic challenges.
Despite Anwar dismissing alleged plots against his government, concerns about political stability persist, given the country’s history of four different premiers in as many years before Anwar assumed power in 2022.
Alvin Tan, Head of Asia Foreign Exchange Strategy at RBC Capital Markets in Singapore, notes that while the Malaysian ringgit is undervalued, there is no significant catalyst for a revaluation shift. The absence of positive developments in Malaysia and the perceived fragility of the coalition government contribute to the currency’s challenges.
Tan anticipates a 2% decline in the ringgit against the US dollar in the first half of 2024. In October, the ringgit slumped to nearly 4.8 against the US dollar, the weakest since January 1998 during the Asian financial crisis.
The ringgit closed at 3.492 against the Singapore dollar on Jan 12, down 0.4% in January.
The uncertainty surrounding the potential royal pardon for incarcerated former premier Najib Razak adds another layer of complexity to the market. The Malaysian King-led board will convene in January to decide on Najib’s application.
Oil price weakness and a slow recovery in China, Malaysia’s largest trading partner, further contribute to the ringgit’s challenges. Weaker-than-expected purchasing managers’ index data from China indicates a decline in growth momentum.
Investors are closely monitoring Malaysia’s upcoming trade data on Jan 19, along with advance gross domestic product data. While bets on potential interest rate cuts by the US Federal Reserve may provide some support, conflicting statements from policymakers, such as Federal Reserve Bank of Atlanta president Raphael Bostic, suggest a more nuanced outlook for rate cuts.
