Ringgit edges up against US Dollar amid cautious market sentiment

[MALAYSIA] The Malaysian Ringgit opened slightly higher against the US Dollar on Monday, March 3, 2025, as cautious trading took precedence ahead of anticipated tariff impositions by the United States. At 8 AM, the local currency improved marginally to 4.4595/4650 compared to the previous day's closing of 4.4600/4650. This subtle shift comes ahead of the United States’ decision to implement import tariffs on Canada, Mexico, and China, which are set to take effect on March 4, 2025.

According to Dr. Mohd Afzanizam Abdul Rashid, the chief economist at Bank Muamalat Malaysia Bhd, the current global economic environment is highly influenced by the Federal Reserve’s stance on inflation and monetary policy. The recent decrease in both the headline and core Personal Consumption Expenditures (PCE) inflation rates—measuring at 2.5% and 2.6% respectively in January 2025—suggests that the Fed is likely to maintain its restrictive monetary policies to manage inflation risks.

Trade Concerns Drive Cautious Sentiment

The cautious tone in the markets stems largely from the looming 25% tariffs on Canada and Mexico, alongside a 10% tariff on Chinese imports. This trade escalation is expected to create further uncertainty in global markets. The situation is particularly sensitive as the tariffs are anticipated to take effect on Tuesday, adding complexity to the ongoing discussions surrounding trade relations between these major economies. The outcome of these tariff decisions will likely influence the Ringgit’s performance in the coming days, as traders brace for potential volatility in currency markets.

The Ringgit’s mild upward movement against the US Dollar reflects this cautious optimism, with traders carefully monitoring the global economic situation. The upcoming tariffs are seen as a significant factor, adding weight to concerns about international trade and its impact on global economic stability.

Federal Reserve’s Influence on Malaysian Currency

Dr. Afzanizam also highlighted the importance of the Federal Reserve’s policies in shaping currency movements. As one of the key inflation measures tracked by the US central bank, the PCE inflation rate's moderation to 2.5% suggests that the Federal Reserve may keep its interest rates steady. This move would help to curb the risk of rising inflation while providing stability to the US Dollar. He pointed out, "The Fed is expected to keep the rate steady until they are convinced that inflation will move toward the two percent target." This forward guidance is crucial for global financial markets, including the Malaysian Ringgit, as any shift in the Fed’s approach could cause fluctuations in currency values across the world.

Ringgit's Movement Against Other Currencies

While the Ringgit appreciated slightly against the US Dollar, it showed mixed performance against other major currencies. The Malaysian currency strengthened against the Japanese Yen, with a rate of 2.9564/9605, up from 2.9682/9717 at the close of last week. However, it lost ground against the British Pound, falling to 5.6185/6255 from 5.6174/6237, and also weakened against the Euro, with a rate of 4.6423/6481, down from 4.6362/6414.

The Ringgit also exhibited a positive trend against several ASEAN currencies. It gained against the Singapore Dollar, reaching 3.3036/3081 from the previous 3.3069/3108, and appreciated against the Thai Baht to 13.0242/0498 from 13.0455/0670. Similarly, the local currency saw slight improvements against the Indonesian Rupiah, standing at 268.6/269.1 from 268.7/269.1 previously.

ASEAN Currency Trends

The Malaysian Ringgit’s strength against its ASEAN counterparts, including the Singapore Dollar and Thai Baht, signals a degree of regional resilience despite the prevailing global uncertainties. The relative stability in these currencies can be attributed to the broader economic policies within Southeast Asia, which have remained largely steady compared to the more volatile trade relations between the US and its trading partners.

Despite the overall mixed performance, the Ringgit’s exchange rates indicate a cautiously optimistic outlook in the region. This trend could be driven by investor sentiment that favors the ASEAN region as a potential stable market, particularly in light of trade tensions elsewhere in the world.

The Malaysian Ringgit’s marginal appreciation against the US Dollar is a reflection of cautious optimism in the face of global trade uncertainties. While the looming tariffs and their potential economic impact on Malaysia and its trading partners remain a concern, market participants appear to be balancing these risks with the broader outlook on inflation and Federal Reserve policies.

As Dr. Afzanizam observed, the Fed’s focus on maintaining restrictive policies to curb inflation will continue to influence the global financial landscape, including emerging markets like Malaysia. As the Ringgit opens slightly higher, its future movements will depend heavily on the resolution of international trade conflicts and the broader economic policy stance of the US.

In the short term, the Ringgit’s performance is likely to remain volatile, with traders remaining cautious ahead of the anticipated tariffs. The local currency’s strength against regional counterparts suggests that, while challenges persist, the Malaysian economy is showing resilience in navigating a complex global economic environment.