A promising future for the Malaysian Ringgit awaits.

It’s been 12 months of encouragement for the Malaysian ringgit (MYR) against the US dollar (USD), as national instability has seen the value of the ringgit strengthen from 4.44 MYR to USD in March 2020 to 4.02 MYR to USD at the turn of the New Year. This represents a fall of approximately 10% in the overall value of Malaysia’s fiat currency against the greenback – an impressive amount in such a short space of time.

What are the Causes of the Malaysian Ringgit’s Renewed Stability?

The Malaysian ringgit was one of the best-performing currencies in the Far East in 2020. A rise of 10% in the value of MYR against the US dollar will not have gone unnoticed with traders and investors in the forex markets. These are individuals who usually embark on forex trading to take advantage of many small moves on fiat currency pairs which are some of the most liquid markets on the planet. Therefore 10% returns on ‘short’ forex positions are largely unheard of, except in the most severe geopolitical circumstances.

According to financial analysts, there is a belief that the ringgit could strengthen further still against the greenback to around 3.85 MYR to the dollar. The COVID-19 pandemic has hit the US economy hard, while the Chinese economy has returned to growth significantly quicker than its rival. The US and China are the largest and third-largest export markets for Malaysia, so the ability to return to strong levels of trade with the People’s Republic has placed increased strain on the greenback against the ringgit.

Dr Mohd Afanizam Abdul Rashid, chief economist for Bank Islam Malaysia, believes that the acceleration in the world’s COVID-19 vaccination program is promising news for the Malaysian economy. Dr Rashid points to the early approval “by the UK government” of the Pfizer/BioNtech vaccine enabling the vaccine to enter circulation in early 2021 and “allow[ing] the reopening of the economy to be more forceful” in Malaysia.

AmBank analysts also considered the ringgit to be somewhat undervalued, despite the short-term challenges that loom for the Malaysian economy. Malaysia’s political landscape is thought to be a major influence on the ringgit’s position in the World Bond Index. Malaysia declared a state of national emergency in January to curb the spread of the pandemic nationwide. The country’s so-called ‘business bubble’ with Singapore has also been put on hold for a three-month period which could also cause short-term headwinds for the Malaysian economy.

The new US presidential administration is also good news for Malaysia, with President Biden viewed as a more approachable and amenable business partner than former president Donald Trump. This could ramp up the inflow of foreign funds and investment into Malaysia during 2021 which will almost certainly power demand for ringgit.

Furthermore, higher oil prices are also a basis for optimism, with OPEC’s move to lengthen production cuts for oil well into 2021 are almost certain to lead to an uptick in crude oil values. All of which should strengthen the ringgit further still, resulting in a continued appreciation of the ringgit.

 

What are your thoughts on the likelihood of the strengthening MYR?

 

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