Ringgit opens stronger despite geopolitical risk and firm US dollar

The Malaysia ringgit began the trading week on firmer footing—gaining ground not only against the US dollar but across a basket of major and regional currencies. On its face, that may read as surprising. Just hours earlier, the United States had confirmed airstrikes on Iranian nuclear sites. Tensions in the Middle East climbed, Brent crude oil jumped nearly 2.5%, and global investors braced for fallout.

In most scenarios, this sequence would trigger a textbook “risk-off” reaction: dollar up, emerging market currencies down. But not this time.

The ringgit opened at 4.2420/2655 against the greenback, strengthening from Friday’s 4.2505/2565 close. It also edged higher versus the yen, euro, pound, and ASEAN currencies. However, analysts, including Bank Muamalat’s Dr. Mohd Afzanizam Abdul Rashid, are not interpreting this as a true vote of confidence. Rather, it's a short-term positioning move with underlying capital hesitation—and potentially fragile legs.

At the heart of this moment is oil. Brent crude prices rose to US$78.93 per barrel—its highest since January 2025—reflecting market anxiety over how Iran might respond. A particular fear: disruption in the Strait of Hormuz, through which a fifth of global oil supply transits daily.

For oil-sensitive economies like Malaysia, this presents a double-edged sword. Higher crude prices can offer a temporary trade revenue boost, yet the broader shock to global markets often outweighs the benefit. If energy prices remain elevated or volatile, institutional investors typically de-risk—pulling back from FX positions perceived as vulnerable to commodity or capital flow disruption.

That’s why the ringgit’s initial rise is not likely to hold if tensions escalate. Even with export-linked benefits, risk appetite for regional currencies tends to weaken when oil becomes a pressure valve for geopolitical flashpoints.

At the same time, the US Dollar Index (DXY) climbed to 98.937—signaling continued global demand for dollar-denominated safety. This further complicates the narrative. The greenback’s strength typically exerts downward pressure on emerging market currencies, especially those with smaller reserve buffers or greater external financing exposure.

And then there’s gold. Spot prices crept up 0.27% to US$3,377.42 per ounce—reflecting quiet but steady movement into hedges. Historically, such moves imply not panic, but defensive rotation. The markets are bracing, not reacting blindly.

For Malaysia, this means the currency’s momentary strength is swimming against larger macro currents. A deeper risk-off wave could quickly reverse direction—particularly if oil price volatility or Middle East escalation intensifies.

Notably, the ringgit didn’t just gain against the dollar. It appreciated against the yen, euro, pound, and ASEAN peers like the Singapore dollar, Thai baht, Indonesian rupiah, and Philippine peso. That kind of synchronized gain could be read as a regional vote of strength—but more likely reflects short-term portfolio hedging or technical rebalancing.

Within the region, FX volatility often lags global events by a few days. Local currencies tend to absorb external shocks more slowly, especially when central banks are quietly managing liquidity buffers or watching for capital outflow patterns.

In this context, the ringgit’s relative gains don’t signal resilience so much as a quiet period before potential repositioning. Currency traders and sovereign funds across Southeast Asia will be closely monitoring whether this early strength becomes a policy problem—or fades as fast as it appeared.

FX markets are not just reflections of trade and interest rate differentials—they’re forward-looking signals of capital behavior. And when geopolitical instability hits a choke point like the Strait of Hormuz, risk tolerance tends to shrink.

Malaysia’s reserve position remains strong by regional standards, but not immune to contagion from energy price shocks or dollar tightening. If gold continues to climb and the DXY holds firm or strengthens further, we may see incremental repositioning out of ringgit and into safer assets—even if headline inflation remains contained.

This would not be about panic, but policy prudence. Institutional allocators across the Gulf, Singapore, and East Asia are likely to interpret the US-Iran flare-up as a signal to stay cautious on emerging market FX exposure. That includes Malaysia—not because of domestic fundamentals, but due to its exposure to global commodity and capital flow crosswinds.

If Brent crude breaches US$80–85 per barrel, or if Iran makes a credible threat to disrupt shipping lanes, we could see preemptive liquidity tightening by regional central banks. For Malaysia, this may involve indirect support mechanisms: reducing interbank FX volatility, stabilizing ringgit-dollar swaps, or quietly reinforcing reserve posture.

None of this would require headline policy shifts—but it would be a clear signal that the currency’s perceived stability is not left to market forces alone. In that sense, this episode—brief ringgit strength amid rising global risk—is less about resilience and more about signaling delay. Markets move incrementally before they move abruptly.

The ringgit’s early gains reflect more technical rebalancing than structural strength. With energy prices rising, US dollar dominance intact, and geopolitical uncertainty looming, institutional capital remains cautious. The real test won’t be Monday’s quote—it will be how FX liquidity and sentiment evolve if the conflict persists. This isn’t currency optimism. It’s capital caution wearing a calm disguise.