Where next for the Malaysian Ringgit?

Malaysia’s Ringgit hit an all -time-low against the US dollar in November 2022, following the Federal Reserve’s unprecedented rate hiking cycle. Uncertainties surrounding the central banks’ monetary policy continued into the new year, driving heightened volatility in the pair. From February to May 2023, the exchange rate of USD/MYR jumped by nearly 5%.

Looking ahead, the Fed's flagging of a possible rate pause at May’s FOMC meeting suggests the Ringgit might gradually regain its strength against the greenback. This is due to the narrowing interest rate differentials, which could potentially prompt the return of demand for the Malaysian Ringgit.

Malaysian economy: MYR past performance

From 2011 to 2019, Malaysia's economy delivered an impressive annual growth rate of 5.3%. However, the arrival of the pandemic in 2020 resulted in a sharp 5.6% decline in GDP, marking the worst economic contraction since the 1998 Asian Financial Crisis. From 2021, Malaysia's economy began to recover, with second-quarter GDP growth reaching 7.5%.

Despite the significant obstacle presented by the pandemic in the short term, Malaysia's economy has shown resilience in the face of various challenges. Following a strong recovery in 2022, economic growth in Malaysia is expected to moderate throughout 2023 and maintain above 3% to the end of the year. Although inflationary pressures are expected to be well-anchored, global economic headwinds remain the primary concern.

The Malaysian Ringgit has experienced significant depreciation against the USD over the past decade. The MYR reached its lowest level in over a decade in March 2020 due to the pandemic-induced global economic slowdown and declining oil prices, a key export for Malaysia. Since then, the MYR has gradually regained strength thanks to improved economic prospects, higher commodity prices and accommodative policy.

What moves the MYR price?

The Malaysian Ringgit is influenced by a range of internal and external factors that affect its price in the foreign exchange market.

Domestically, macroeconomic indicators such as GDP growth, inflation, trade balance, and monetary policy can all shape market sentiment towards the MYR. Additionally, political developments and stability in the country can have significant impacts.

Since Malaysia is a net exporter of oil and gas, geopolitical events and fluctuations in global oil prices, can affect the currency's value. Changes in demand and supply for the currency in the foreign exchange market can also influence capital flows and the MYR's valuation relative to other currencies.

Malaysian Ringgit forecast

USD/MYR

The USD/MYR experienced significant volatility in 2022. At the beginning of the year, the exchange rate hovered around 4.20. As the year progressed, with the USD surging to decade high levels amidst the Federal Reserve’s unprecedented rapid rate hikes, USD/MYR rose to over 4.70 in November.

However, this was short lived as it gradually fell back down to 4.19 by the end of January, before returning to 4.50 in March.

Looking forward, improving economic conditions in Malaysia along with the narrowing interest rate differentials between Malaysia and the United States and the overall weakness of the USD in the global market will likely weigh on the USD/MYR, which could result in a further downtrend from the March level.

Chart of the USD/MYR over the past year

AUD/MYR

The AUD/MYR exchange rate experienced some fluctuations in 2022-2023. The rate reached its peak at 3.18 in April. However, starting from August 2022, the rate began to decline, reaching a low of 2.9 MYR to 1 AUD in October 2022. This decline was largely due to the strengthening of the Malaysian Ringgit, as well as the rising concerns about the Australian economy after the Reserve Bank of Australia raised its official rate to a decade high.

Chart of the AUD/MYR over the past year

GBP/MYR

At the start of 2023, GBP/MYR was trading around 5.27 and remained relatively stable until early February where it reached a low of 5.1. Since then, the pair has been climbing to a peak of 5.6 as red-hot inflation in UK is projected to prolong the Bank of England's tightening journey. Looking ahead, the pair is projected to continue on an uptrend until the BOE’s pivot sign surfaces.

Chart of the GBP/MYR over the past year

Malaysian Ringgit summary

• Malaysia's economic growth is projected to moderate throughout 2023 after a robust rebound in 2022
• Over the past decade, the Malaysian Ringgit has undergone substantial depreciation against the US dollar
• The Malaysian Ringgit's price in the foreign exchange market is influenced by various internal and external factors
• As the interest rate differential with the USD narrows, there should be a renewed demand for the Malaysian currency