Ringgit to hold firm into next year

PETALING JAYA: Economists and foreign exchange (forex) watchers continue to be bullish on the prospects of the ringgit heading into 2026, as the local note strengthened to RM4.11 against the US dollar yesterday, its strongest level in more than 14 months vis-a-vis the American currency.

The ringgit briefly touched RM4.09 versus the greenback on Sept 30 last year, before weakening to hover around the RM4.50 mark in the fourth quarter of financial year 2024 (4Q24), although 2025 has witnessed a positive comeback by the Malaysian note, not only against the dollar but also compared to other regional and major currencies.

Investment strategist and country economist at IPP Global Wealth Mohd Sedek Jantan opined that the ringgit’s appreciation this year has been driven primarily by fundamental repricing rather than short-term sentiment, reflecting a cleaner macro backdrop and more favourable external dynamics.

He told StarBiz that Malaysia’s external balance has materially improved, supported by a wider goods surplus, resilient services receipts, and softer import growth.

“This has strengthened the basic balance and reduced pressure on the current account, positioning the ringgit as one of the more fundamentally undervalued Asian currencies entering 2025.

“The repatriation of export proceeds following improved compliance under the forex code has further enhanced onshore liquidity and helped reduce volatility,” he said.

In addition, and most prominently, Mohd Sedek said the local note has benefited from broad dollar softness linked to the Federal Reserve’s (Fed) easing pivot, which markets have anticipated.

This has led to the compression in US–Malaysia rate differentials and eased the structural drag that weighed heavily on the ringgit over 2022 and 2023.

He added: “While the Fed’s pace of cuts remains uncertain, the shift away from a restrictive stance has already reduced upward pressure on the dollar and supported the currency movements of emerging markets with strong external fundamentals.”

Moreover, he said portfolio dynamics have turned more supportive, with foreign investors returning as net buyers over several consecutive sessions, which reflects both the improving valuation appeal of Malaysia’s equity market and increased interest in Asean as investors rebalance away from China-linked exposures.

Assistant manager of research at iFast Capital Kevin Khaw acknowledges that the local note has exceeded his initial expectation, which stands at RM4.20 against the dollar at year-end level.

In the present context, he agrees with Sedek that the enthusiasm of the ringgit stems from the relatively dovish stance from the Fed lately, which is a supportive factor to emerging markets, before adding: “The neutral stance of Malaysia amidst US-China tension and the former’s strategic location/supply chain within the region has led to a significant interest from foreigners investors, proven by the improvement in foreign and domestic direct investments up to September 2025.”

On the local front, Khaw pointed out that a healthy gross domestic product (GDP) and encouraging numbers in exports and private consumption is a key indicator of Malaysians’ optimism about the domestic economy.

“Overall, we think the RM4.11 level as of today is encouraging, but the key factor to watch out for next will be the rate stance of the Fed and the Bank of Japan, which will be heavily impacting the world’s financial system in the next meeting ahead.

Khaw maintains the assumption that another surprise is unlikely, keeping to his prediction that the ringgit will be range-bound between RM4.10 to RM4.15 against the greenback by end of the year.

Looking ahead to 2026, Mohd Sedek is expecting the ringgit to trend firmer towards the 4.05 level against the dollar, supported by a narrower valuation gap, better export momentum especially as the global tech cycle broadens, and sustained inflows as emerging markets assets regain favour.

“Bank Negara Malaysia’s intention to maintain the overnight policy rate at 2.75% should not hinder forex performance; instead, it supports domestic demand while allowing the ringgit to take its cue from external balances, fiscal consolidation signals, and structural inflows linked to high-value investment,” he predicted.

Meanwhile, economist and associate professor at the Universiti Kuala Lumpur Business School Dr Mohd Harridon Mohamed Suffian believes the perception of Malaysia as a nation that is worthy, feasible, and financially stable in terms of trade and commerce had put the ringgit in a favourable position, supported by the country’s congruent economic fundamentals.

In addition to the Fed’s policies, he told StarBiz that the level of foreign direct investments this year is a factor that has strengthened the local note, where Malaysia’s political stability has served as a catalyst and enticement factor.

“The ringgit is now more resilient towards global macro-economic hindrances. Furthermore, it has enjoyed the backing of investors that are willing to partake upon numerous projects in Malaysia due to favourable economic policies by the government.

“Malaysia’s neutrality also means it is a de facto centre of global diplomacy,” he observed.

However, Mohd Harridon cautioned that 2026 would probably be a challenging year, as various nations are vying to outdo each other in terms of trade, investment, and for favourable financial portfolios.

All these factors would contribute significantly to the dynamic movement of currencies, and thus, the ringgit would see stiff competition from other notes such as the Singapore dollar and the euro.

Of interest, economist Doris Liew had a different perspective, emphasising that the ringgit had been undervalued for an extended period despite Malaysia’s fundamentals having remained strong.

“What we are seeing now is essentially a market correction. Also, Malaysia’s recent surge in diplomatic and economic visibility, notably the Asean chairmanship, hosting the US presidency visit, the signing of the new US-Malaysia trade agreements, the finalisation of the upgraded China-Asean free trade agreements, and high-profile outreach have collectively signalled strategic alignment and policy stability,” she told StarBiz.

Moreover, she said economic growth for the year is projected to outperform earlier expectations, giving markets even more reason to reprice the currency upward.

Liew said: “Our projection in 2026 is that the ringgit is likely to hold relatively strong as the economy remains resilient and investment momentum continues, particularly with regional growth nodes such as the Johor-Singapore Special Economic Zone gaining traction.”

On the other hand, like Mohd Harridon, she believes that upside for the ringgit is not unlimited, pointing out that as Malaysia inches closer to the next election cycle, political uncertainty could spill into economic sentiment and weaken investor confidence.

“The fundamentals point to stability, but sentiment risks will need close monitoring,” said Liew.

At the same time, investor Ian Yoong views the ringgit as a major beneficiary of de-dollarisation, while adding he is confident that the local currency will strengthen to RM3.90 to the dollar by 2026 given the ongoing de-dollarisation process, which is largely overseeing a global move from the greenback and cryptocurrencies into gold and undervalued currencies with low sovereign risk.

He also expects the ringgit to appreciate to RM3.05 against the Singapore dollar and to RM4.60 compared to the euro next year.