The ringgit is expected to remain under near-term pressure as a resurgent US dollar and expectations of further Federal Reserve tightening weigh on emerging-market currencies, although Malaysia’s resilient economic fundamentals should continue to provide support, according to MBSB Research.
In its September currency review, MBSB said the ringgit depreciated 1.4% month-on-month to RM4.08 against the US dollar at end-September from RM4.025 at end-August. It touched a monthly low of RM4.098 before recovering some ground towards the end of the month.
The weakness came as the US Dollar Index rose 2% month-on-month to 101.45, supported by the Federal Reserve’s hawkish stance after its September meeting, resilient US economic activity, geopolitical uncertainty and higher oil prices.
MBSB said the Fed’s 25-basis-point rate increase and indications of another potential hike before year-end strengthened expectations that US interest rates could remain higher for longer, supporting the dollar.
Despite the weaker September performance, the research house maintained its forecast for the ringgit to average around RM4.01 per US dollar in 2026 and move towards RM4.03 by year-end.
However, it expects the currency to retain a weaker bias in the short term as higher US rates could delay a reversal of capital flows into emerging-market currencies. MBSB said a more sustained ringgit recovery would depend on clearer US disinflation and a moderation in expectations for further Fed tightening.
Malaysia’s domestic fundamentals remain supportive, with strong export growth and a widening trade surplus providing underlying support to the currency, it added.
The ringgit also weakened against a broader basket of Malaysia’s trading partners, with MBSB’s Trade-Weighted Ringgit Index declining 1.1% month-on-month to 98.20 in September. The research house nevertheless expects the index to rise to 102.0 by end-2026, reflecting its expectation for broader ringgit outperformance over the longer term.
Capital flows were mixed. Malaysia recorded US$416 million in equity outflows in September, while foreign holdings of Malaysian debt rose by RM15.8 billion to RM320.1 billion, indicating stronger demand for domestic bonds.
MBSB said the main risks to its currency outlook remain elevated US inflation, geopolitical tensions and higher energy prices, which could keep global monetary conditions tight for longer.
