Ringgit dips amid US trade tensions and Fed rate cut speculation

[MALAYSIA] The ringgit began lower against the US dollar due to a lack of purchasing interest, as market uncertainty remains after US President Donald Trump imposed global reciprocal tariffs. At 8.09 a.m., the ringgit had fallen to 4.4485/4765 against the dollar, down from 4.4335/4400 last Friday.

The decline reflects broader concerns over escalating trade tensions, as the Trump administration’s latest tariffs target key trading partners, including China and the European Union. Analysts warn that retaliatory measures could disrupt global supply chains, further dampening investor confidence in emerging markets like Malaysia. This comes at a time when the country’s export-driven economy is already facing headwinds from softer commodity prices and slower global demand.

Dr Mohd Afzanizam Abdul Rashid, chief economist of Bank Muamalat Malaysia Bhd, said currency markets are likely to continue volatile due to weak mood following the Trump administration's sweeping tariff announcement last week. He stated that S&P 500 and Nasdaq futures plummeted 4.57 percent and 5.33 percent, respectively, indicating that investors are negative on risky assets.

Market participants are also closely monitoring China’s response, as Beijing has historically matched US tariffs with countermeasures. A prolonged trade standoff could exacerbate currency fluctuations, particularly for Asian economies heavily reliant on manufacturing and exports. The ringgit, like its regional peers, remains vulnerable to shifts in global risk appetite amid these developments.
On that point, the ringgit is projected to trade carefully, as demand for safe haven currencies like the US dollar remains strong.

"Currency markets are wary over the associated risk of recession in the US as tariffs would raise the cost of doing business and would result in the destruction of US demand,” he told Bernama.

According to Mohd Afzanizam, the US Federal Reserve (Fed) has so far stayed tranquil. He added that US interest rate futures show a greater than 100% chance of Fed Fund Rate reduction in June and July's Federal Open Market Committee meetings. Benchmark rates could fall to 3.50 percent from the current 4.25 percent to 4.50 percent, representing a 100 basis point drop.

The potential rate cuts signal growing concerns over the US economic outlook, as trade tensions and slowing growth weigh on policymakers’ decisions. Lower US interest rates could provide some relief to emerging market currencies, including the ringgit, by reducing the dollar’s yield advantage. However, much depends on whether global trade conditions stabilize in the coming months.

The ringgit traded largely lower against the major currencies. It fell against the Japanese yen to 3.0582/0779 from 3.0294/0340, declined against the euro to 4.8773/9080 from 4.8706/8778, and rose against the British pound to 5.7399/7760 from 5.7591/7676 at last Friday's close.

The indigenous currency was combined with ASEAN currencies. It rose against the Thai baht to 12.8376/9274 from 12.9589/9847, and against the Singapore dollar to 3.3035/3248 from 3.3153/3204 before. It declined to 267.1/268.9 versus the Indonesian rupiah from 266.2/266.7 and 7.82/7.88 against the Philippine peso, down from 7.80/7.782.

Regional currency movements highlight the uneven impact of global trade uncertainties, with some ASEAN economies benefiting from relative stability in domestic demand. However, analysts caution that prolonged volatility in the US dollar and weaker export performance could pressure regional currencies in the medium term, keeping central banks on alert for potential interventions.