The ringgit is facing near-term downward pressure from high US yields, geopolitical risks in the Middle East and rising domestic political risks, factors that could influence USD/MYR in the coming months. The Middle East conflict is assumed to remain contained, yet oil supply disruptions could keep global inflation concerns elevated and delay Fed easing; tanker flows through Hormuz have collapsed after the June ceasefire Memorandum of Understanding between the US and Iran broke down early this month.
Malaysia’s growth backdrop, contained inflation, a strong external sector and prudent policymaking are expected to limit any currency weakness and reduce the risk of disorderly depreciation. Authorities have shown a willingness to smooth excessive FX volatility, and—echoing measures used in 2024—may again encourage export conversion and repatriation flows via government linked corporates if pressure builds.
Domestic politics may take on a larger role, with uncertainty around state elections, coalition dynamics and general election timing potentially adding a risk premium. After a poor showing by the ruling PH coalition party in the Johor state election on 11 July, attention turns to the Negeri Sembilan vote on 1 August as the next signal for the ringgit.
Derivative Strategies Amid Heightened Political and Global Risks
We advise derivative traders to position for heightened volatility in the USD/MYR currency pair over the coming weeks. The upcoming Negeri Sembilan state election on August 1 is highly anticipated, especially after the ruling coalition’s weak performance in Johor on July 11. To hedge against a potential drop in the Ringgit, we recommend buying short-term USD/MYR call options to capture the rising political risk premium.
Although local political tension is rising, we must acknowledge Malaysia’s resilient economy, with 2026 GDP growth expected to hit 4.5% and inflation contained around 2.0%. However, global pressures like the collapse of the US-Iran ceasefire and disrupted shipping through the Strait of Hormuz could keep inflation high and delay US rate cuts. Traders can capitalize on these conflicting drivers by employing long straddle strategies to profit from sharp movements in either direction.
Official Support and Tactical Positioning Opportunities
We anticipate that Bank Negara Malaysia will actively intervene to prevent a disorderly slide of the Ringgit, utilizing state-linked corporate repatriations to smooth out wild swings. Therefore, we should look to short USD/MYR on major upward spikes, expecting official support to limit the Ringgit’s downside. Managing these positions with tight stop-loss orders will be essential as the market reacts to the election results this weekend.
