Melbourne – Asia’s top performing currency in 2024 is set for a bout of weakness as traders brace themselves for a higher risk of an interest rate cut amid trade tensions.
After being largely range-bound in 2025, the Malaysian ringgit may fall to 4.6 per US dollar by end-June, according to analysts at Credit Agricole and Malayan Banking.
The currency strengthened 0.3 per cent to 4.435 per US dollar in early trading on March 17, paring last week’s loss. The ringgit has gained 0.6 per cent against the US currency so far in 2025.
The Singapore dollar was trading at 3.3355 ringgit as at 10.56am on March 17. The Singapore currency has risen 1.5 per cent against the ringgit in 2025.
“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 Mr David Forrester, a senior strategist at Credit Agricole in Singapore.
Traders are fully pricing a 25 basis point reduction in Bank Negara’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.
US President Donald Trump’s planned tariffs on chip imports may also hurt exports for the South-east Asian country. The United States 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 Mr Saktiandi Supaat, head of FX research at Maybank.
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 favourable 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 (gross domestic product) 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 Ms Audrey Ong, a strategist at Barclays Bank in Singapore. BLOOMBERG
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