(Bloomberg) — Asia’s top performing currency last year is set for a bout of weakness as traders brace for a higher risk of an interest rate-cut amid trade tensions.
After being largely range-bound this year, the Malaysian ringgit may fall to 4.6 per dollar by end-June, according to analysts at Credit Agricole and Malayan Banking Bhd. The currency strengthened 0.3% to 4.4350 in early trading Monday, paring last week’s loss.
“Slowing global trade as well as Chinese and Malaysian growth due to Trump tariffs could force Bank Negara Malaysia to cut rates late in 2025,” said David Forrester, a senior strategist at Credit Agricole in Singapore.
Traders are fully pricing a 25 basis point reduction in Bank Negara Malaysia’s policy rate within 12 months, up from just a two-thirds chance at the beginning of the month, according to swaps data compiled by Bloomberg. Higher US tariffs on China, Malaysia’s biggest trade partner, would hurt an economy that has been showing resilience amid global tensions.
Any pressure on the yuan may weigh on the ringgit given their close correlation. The local currency has also historically weakened in the second quarter, according to Bloomberg-compiled data of the last 10 years.
Donald Trump’s planned tariffs on chip imports may also hurt exports for the Southeast Asian country. The US is Malaysia’s third-largest market for semiconductor exports.
However, pressure on the ringgit may ease amid growing bets for more interest-rate cuts from the Federal Reserve due to US recession fears. Fading US exceptionalism may also support a ringgit move towards 4.35 per dollar by the end of the year, said Saktiandi Supaat, head of FX research at Maybank. The ringgit has gained 0.6% against the dollar so far this year.
Malaysia’s central bank left the policy rate unchanged at its March meeting, citing a resilient economy. While the ringgit will primarily be driven by external developments, it said favorable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the currency. Economists surveyed in November expect the central bank to remain on hold throughout the year.
Still, “the recent moderation in GDP growth suggests that policymakers are unlikely to be so confident about the strength of the Malaysian economy that they would look through any US tariffs,” said Audrey Ong, a strategist at Barclays Bank in Singapore.
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