The Malaysian ringgit (MYR) has experienced a significant turnaround in 2024. Currently, the U.S. dollar (USD) to MYR exchange rate stands at 4.12, an unusual level for the MYR, which traditionally tends to depreciate against the USD. This recent surge in strength is not attributable to a single factor but is instead the result of a combination of domestic and international developments that have positively influenced the currency. This article will explore the potential drivers behind the MYR’s performance and analyse its implications for the Malaysian economy.
USD/MYR stands at 4.12 as of 26 September 2024. Source: Investing.com Factors contributing to MYR strength 1. U.S. interest rate cuts
One of the most significant external factors influencing the MYR’s performance has been the shift in U.S. monetary policy. The U.S. recently announced its first rate cut in four years, bringing the interest rate down to a range of 4.75% to 5%. It appears that this will not be the only rate cut by the Federal Reserve, as recent forecasts indicate an expected drop to around 4.4% by the end of 2024 and further to 3.4% by the end of 2025. Typically, such rate cuts weaken the U.S. dollar relative to other currencies. Consequently, this anticipated shift has made the MYR more attractive to local investors seeking higher yields.
Moreover, the potential rate cuts in the U.S. have led to increased capital flows into emerging markets, including Malaysia. Historically, emerging markets and the USD have exhibited a negative correlation. This influx of foreign capital has further strengthened the ringgit’s position in the forex market.
The inverse relationship between the performance of emerging market assets and USD. Source: Fidelity 2. Foreign investment inflows
Building on favourable global economic conditions, Malaysia saw a substantial increase in foreign direct investment (FDI) throughout 2024. In early