Ringgit gains ground as US data fuels rate cut doubts

[MALAYSIA] Malaysia’s ringgit is quietly pushing back against dollar strength, lifted by a turn in global market sentiment after disappointing US economic numbers. Instead of reacting on autopilot, investors appear to be recalibrating their assumptions—about rate trajectories, inflation stickiness, and the broader rhythm of capital flows. For Southeast Asia, this isn't just a currency blip; it’s a reminder that the region’s monetary landscape is shifting into a more complex phase, where anticipation matters more than reaction and hesitation could cost dearly.

Key Takeaways

• The ringgit strengthened to 4.2245/2295 against the US dollar, up from 4.2435/2490 the day before.
• The gains were driven by risk-on sentiment after US economic data came in softer than expected.
• Tariff shocks and inflation risks are creating a policy impasse for the US Fed, limiting space for rate cuts.
• Investors are watching today’s US non-farm payrolls for clues on future Fed decisions.
• Bank Muamalat’s chief economist flagged an ongoing policy dilemma: inflationary pressures vs. slowing growth.

Comparative Insight

The ringgit’s modest rebound echoes a regional trend—currencies like the Thai baht and Indonesian rupiah have similarly gained as the dollar weakened. However, Malaysia’s position is slightly more precarious given its relatively higher exposure to trade-linked volatility and capital flows. Compared to the Singapore dollar, which benefits from MAS’s managed float and policy credibility, the ringgit trades in a more sentiment-driven band, making it vulnerable to swings in US macro data and commodity prices.

Historically, similar episodes—such as post-2015 China slowdown fears or 2020 pandemic-induced stimulus waves—have caused short-lived rallies in emerging market currencies when the Fed appeared dovish. The current setup is more complex: inflation remains sticky, and US employment data is still resilient. That leaves currencies like the ringgit in a waiting game, moving not on fundamentals, but on market interpretation of Fed signals.

What's Next

The immediate catalyst is today’s US jobs report. A softer number could cement expectations of a Fed rate cut later this year, extending emerging market currency gains. But if the data surprises to the upside, the dollar may retrace its losses and put pressure back on the ringgit. Domestically, Bank Negara Malaysia (BNM) will need to balance defending the ringgit without oversteering policy. A strong dollar and continued tariff escalation globally could eventually prompt BNM to intervene more directly or revise its growth outlook.

Beyond near-term volatility, the ringgit’s trajectory will be shaped by external demand, commodity price trends, and how Malaysia manages fiscal consolidation without stifling growth. Investors should also watch for any macro-prudential tweaks from BNM if capital flows become destabilizing.

What It Means

The ringgit’s rise this week is less about domestic strength and more a reflection of external wobbles in US policy certainty. In the world of FX, perception often moves faster than fundamentals. If the US Fed continues to hesitate on rate cuts, Southeast Asian currencies may enjoy brief windows of strength—but those windows are narrowing. For Malaysian policymakers and businesses, this underscores the importance of building resilience into the economy through diversified exports, capital market depth, and sound fiscal anchors. The global monetary tide is turning, but not in one direction.