Malaysian Ringgit slips against surging US Dollar amid rising global uncertainties

[MALAYSIA] The Malaysian ringgit has recently weakened against the US dollar, reflecting growing global economic and political uncertainties. This trend highlights the challenges faced by emerging market currencies in an increasingly volatile international financial landscape. As of Monday, November 11, 2024, the ringgit opened at 4.3850/3995 against the US dollar, down from the previous Friday's close of 4.3800/3850.

Factors Influencing Ringgit Depreciation

Global Political Uncertainties

The upcoming change in US leadership has contributed to market caution. Dr. Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, noted, "Market sentiment remained cautious as traders continued to digest its potential impact on the broader economy as the US President-elect will be inaugurated in January next year". This political transition in the world's largest economy has created a ripple effect in global currency markets, with investors seeking safe-haven assets like the US dollar.

Economic Stimulus Disappointment in China

Another factor contributing to the ringgit's weakness is the underwhelming economic stimulus measures announced by China. Dr. Afzanizam pointed out, "There is also a sense of frustration over China's economic stimulus measures announced last week, which fell short of details to boost domestic demand". As one of Malaysia's largest trading partners, China's economic health significantly impacts the ringgit's performance. The lack of substantial measures to boost domestic demand in China has led to concerns about regional economic growth, putting pressure on currencies like the ringgit.

US Dollar Strength and Its Impact

Rising US Dollar Index

The strength of the US dollar is evident in the rising US Dollar Index (DXY), which reached 105.0073. This index measures the value of the US dollar against a basket of major currencies. Its upward trend indicates a broader preference for the US dollar in the global forex market, contributing to the weakening of other currencies, including the ringgit.

Safe-Haven Appeal

In times of global uncertainty, the US dollar often serves as a safe-haven currency. Investors tend to flock to the dollar during periods of economic or political instability, leading to its appreciation against other currencies. This flight to safety has been particularly pronounced given the current global economic landscape and geopolitical tensions.

Technical Analysis of the Ringgit

Despite the current depreciation, there are indications that the ringgit's downside risks may be limited. Dr. Afzanizam noted, "From a technical standpoint, the ringgit is already oversold, indicating that its downside risks are limited". This technical perspective suggests that while the ringgit may continue to face pressure in the short term, there could be a potential for stabilization or even a slight rebound if market conditions improve.

Ringgit Performance Against Other Currencies

The ringgit's performance against other major currencies has been mixed:

British Pound: The ringgit rebounded to 5.6628/6815 from 5.6943/7255.

Euro: It strengthened slightly to 4.6977/7132 from 4.7347/7606.

Japanese Yen: There was a marginal dip to 2.8675/8774 from 2.8637/8795.

Against ASEAN currencies, the ringgit showed varied performance:

Thai Baht: Appreciated to 12.7880/8411 from 12.8947/12.9767.

Philippine Peso: Fell to 7.52/7.55 from 7.47/7.51.

Indonesian Rupiah: Slipped to 279.7/280.8 from 278.6/280.3.

Singapore Dollar: Weakened to 3.3022/3136 from 3.3207/3394.

Implications for the Malaysian Economy

Trade Impact

The weaker ringgit has mixed implications for Malaysia's trade. While it can make Malaysian exports more competitive in the global market, it also increases the cost of imports, potentially leading to inflationary pressures.

Foreign Investment Considerations

Currency depreciation can affect foreign investment decisions. A weaker ringgit might attract foreign investors looking for cheaper assets, but it could also deter those concerned about currency risk and economic stability.

Monetary Policy Challenges

The central bank, Bank Negara Malaysia, faces the challenge of balancing currency stability with economic growth. Intervention in the forex market or adjustments to interest rates might be considered if the ringgit's depreciation becomes more pronounced.

Global Economic Context

The ringgit's depreciation is not occurring in isolation but is part of a broader trend affecting emerging market currencies. Global factors such as trade tensions, geopolitical risks, and the ongoing recovery from the COVID-19 pandemic continue to influence currency markets worldwide.

While the current outlook for the ringgit remains cautious, several factors could influence its future performance:

• Global economic recovery pace
• US fiscal and monetary policies
• China's economic performance and stimulus measures
• Domestic economic indicators in Malaysia
• Geopolitical developments

Investors and policymakers will be closely monitoring these factors to gauge the ringgit's trajectory in the coming months.

The recent weakening of the Malaysian ringgit against the US dollar underscores the complex interplay of global economic and political factors affecting currency markets. While short-term challenges persist, the ringgit's technical indicators suggest limited downside risks. As global uncertainties continue to evolve, the Malaysian economy's resilience and adaptive policies will be crucial in navigating these turbulent financial waters.