19-2-2024 (KUALA LUMPUR) The Malaysian ringgit is teetering on the edge of reaching a record low, with ongoing weakness in the country’s exports and the strength of the US dollar posing risks that could push the currency beyond that level. Currently, the ringgit is approximately 2% away from reaching 4.8850 per US dollar, a level last witnessed during the Asian financial crisis in 1998, which had a devastating impact on currencies across the region. Since the beginning of the year, the local currency has already fallen by nearly 4%.
Khoon Goh, the head of Asia research at Australia & New Zealand Banking Group, warned, “There is a risk that the ringgit will reach a new all-time low. Exports are not recovering unlike those in other Asian economies, and economic growth may remain lacklustre.” Malaysia’s exports have been significantly affected by China’s struggling economy, leading to a decline for the tenth consecutive month in December. While the nation still maintains a current-account surplus, its ratio to gross domestic product has dropped to near the lowest level in two decades, limiting support for the currency, according to Bloomberg Intelligence. Trade data for January is expected to be released on Tuesday, shedding more light on the situation.
The slump in exports has had a negative impact on Malaysia’s economic growth. Coupled with concerns over political stability following alleged attempts to undermine Prime Minister Anwar Ibrahim’s administration, as well as the continued strength of the US dollar, the outlook for the ringgit appears grim.
Market traders will closely monitor this week’s inflation data, which will provide insights into the ability of Bank Negara Malaysia to maintain interest rates and support the currency, should the US dollar’s strength persist as investors reduce their bets on Federal Reserve rate cuts.
Back in October, the ringgit hit 4.7958 against the US dollar, its weakest level since 1998. A further decline could bring the range of 4.82 to 4.85 ringgit per dollar into focus, according to technical analysis.
Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. in Singapore, cautioned, “If the dollar continues to strengthen, either due to further resistance in the Fed cut cycle or a significant risk-off event, then the risk for the ringgit will persist.”
However, despite the current challenges, most analysts anticipate a stronger ringgit by the end of the year as Malaysia’s economic growth gains momentum. Oversea-Chinese Banking Corp. foresees the currency recovering to 4.6 per dollar, while Australia & New Zealand Banking Group predicts a level of 4.45.
Furthermore, the central bank is expected to maintain its key interest rate throughout 2024, even as the Federal Reserve eases its monetary policy.
“This would eventually narrow the yield differentials between the US and Malaysia, providing support for the currency,” Wong explained. “There’s room for the ringgit to recover some lost ground.”
