The ringgit has lagged since the June FOMC, as higher US yields and a wider US–Malaysia rate differential have weighed on MYR. The move has been driven by US rate dynamics rather than any shift in Malaysia’s domestic backdrop, with resilient manufacturing and electronics exports still part of the medium-term framework.
Contained inflation and the continuation of fuel subsidies are reducing the urgency for Bank Negara Malaysia to tighten policy. That leaves MYR more exposed while the US–Malaysia rate gap widens, supporting a near-term bearish bias even as the medium-term stance remains constructive, with domestic macro fundamentals expected to regain influence once US rate pressures ease.
External Pressures and Short-Term Ringgit Weakness
The ringgit has struggled since the Federal Reserve’s meeting earlier this month, as rising US yields dominate market sentiment. We see this as a temporary headwind driven by external factors rather than any decay in Malaysia’s own economic story. The USD/MYR has pushed towards 4.75, reflecting the pressure from US 10-year Treasury yields which are back up around 4.65%.
In the coming weeks, we believe the path of least resistance for the ringgit is downward. This suggests traders could consider buying USD/MYR call options or short-term forward contracts to position for further weakness. The key driver is the widening rate differential, with the US Fed funds rate holding at 5.50% while Bank Negara Malaysia’s policy rate remains at a steady 3.25%.
Policy Backdrop and Medium-Term Outlook
There is little pressure on Malaysia’s central bank to intervene with rate hikes, which further exposes the ringgit. With domestic inflation contained at just 2.1% last month and fuel subsidies still in place, policymakers can afford to wait. This situation is reminiscent of the 2022-2023 period when a hawkish Fed similarly overshadowed strong emerging market fundamentals.
We are maintaining our constructive medium-term view, anchored by resilient fundamentals like the 8% year-on-year growth in electronics exports reported for May. The current bearish stance is tactical, and we will look for signs that US rate pressures are easing. Once that shift occurs, we expect the ringgit’s underlying strength to reassert itself.
