Ringgit Strengthens Against US Dollar Despite Hawkish Fed Stance

The Malaysian ringgit opens slightly higher against the US dollar, despite the greenback's appeal as a safe-haven currency. The ringgit's performance has significant implications for Malaysia's economy, and the government is closely monitoring the situation to ensure financial market stability.

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Ringgit Strengthens Against US Dollar Despite Hawkish Fed Stance

Ringgit Strengthens Against US Dollar Despite Hawkish Fed Stance

The Malaysian ringgit opened slightly higher against the US dollar today, despite the greenback's appeal as a safe-haven currency amid risk-averse sentiment. The US dollar gained additional ground following Federal Reserve chair Jerome Powell's hawkish statement that the US central bank may need to keep rates higher for longer as inflation remains sticky.

The US dollar index (DXY) continued to charge higher to 106.342 points on diminishing rate cut expectations, as the high inflation rate and sturdy economic growth in the US have led the market to reassess their anticipation for monetary easing this year. The latest IMF forecast showed that the global economic growth would remain steady, but raised concerns over the slow progress on fiscal consolidation, which could put upward pressure on inflation.

However, the ringgit was also traded higher against a basket of major currencies, including the euro, Japanese yen, British pound, and ASEAN currencies such as the Thai baht, Singapore dollar, Indonesian rupiah, and Philippine peso. Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that the ringgit would be fairly stable at the prevailing level in the near term, as the global economic growth is expected to remain steady in 2024 and 2025, despite concerns over slow progress on fiscal consolidation.

The ringgit has recently experienced a significant slide, reaching near-record lows not seen since the 1998 Asian financial crisis. This has led to concerns and panic among the public, with the Prime Minister having to reassure that the situation is under control. The main reasons behind the ringgit's decline include the narrowing interest rate differential between the US and Singapore, making Singapore a more attractive destination for capital compared to Malaysia.

Why this matters: The ringgit's performance has significant implications for Malaysia's economy, as a weaker currency can impact inflation, trade, and foreign investment. The government and central bank are closely monitoring the situation and taking steps to ensure the stability of the financial markets.

Bank Negara Malaysia has reaffirmed its commitment to ensuring orderly and efficient functioning of the financial markets, including the foreign exchange market, through ongoing initiatives with government-linked entities and corporations. The ringgit is expected to trade range-bound with an upside bias against the US dollar next week, according to Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid, as the ringgit has been in an oversold position and a technical correction is expected to lift the currency slightly higher.

Key Takeaways

  • Ringgit opened slightly higher against USD despite greenback's safe-haven appeal.
  • US dollar index rose as Fed signals rates may stay higher for longer.
  • Ringgit traded higher against major currencies, expected to be range-bound.
  • Ringgit's decline due to narrowing US-Singapore interest rate differential.
  • Govt and central bank monitoring situation to ensure financial market stability.