Ringgit rises as US government shutdown is avoided

[MALAYSIA] The Malaysian Ringgit experienced an uplift at the start of trading on March 17, 2025, bolstered by positive sentiment following the United States' successful resolution to avoid a government shutdown. This development has led to a weakening of the US dollar, helping the Ringgit open higher in the foreign exchange markets.

US Government Shutdown Averted

The primary driver of the Ringgit's upward movement was the news that the United States had successfully averted a government shutdown. On Friday, March 14, the Senate approved a Republican-backed measure, which ensures government funding for the next six months, effectively averting a shutdown. This outcome reduced uncertainty in global markets and improved risk sentiment, which directly influenced the Ringgit’s performance.

According to Bank Muamalat Malaysia Bhd's chief economist, Dr. Mohd Afzanizam Abdul Rashid, "the avoidance of the US government shutdown helped ease global market concerns, leading to a weaker US dollar." This shift in currency dynamics is especially significant for the Malaysian Ringgit, as it is closely tied to movements in global economic events, particularly those involving the world's largest economy.

Economic Data and Market Sentiment

In addition to the US government shutdown news, economic data from the United States further contributed to the positive sentiment surrounding the Ringgit. Dr. Afzanizam highlighted that weaker US economic indicators have helped bolster the Ringgit's position. One key report was the University of Michigan’s consumer sentiment index, which saw a drastic decline in March, dropping to 57.9 points. This was the third consecutive month of decline and marked the lowest reading since November 2022. Such figures indicate that US consumers are becoming increasingly cautious in their spending habits, which is expected to curb demand and could potentially lead to slower economic growth.

"The sharp drop in the consumer sentiment index indicates that US consumers may scale back spending as the prices of goods, particularly imports, are likely to rise due to tariff measures imposed on Canada, Mexico, and China," said Dr. Afzanizam. This, in turn, could influence the Federal Reserve’s monetary policy, with speculation that the central bank might consider accelerating interest rate cuts in response to slower economic activity.

Federal Open Market Committee (FOMC) Meeting

With the US government shutdown crisis behind them, investors are now focusing on the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for March 18-19, 2025. During this meeting, the Federal Reserve is expected to maintain the Federal Funds Rate (FFR) at 4.50%, but traders will be keenly watching for updated projections regarding inflation, growth, and the unemployment rate. The meeting will also give insights into whether the Fed is considering any changes to its interest rate policies in light of the subdued consumer sentiment and economic data.

This environment of cautious economic sentiment in the US has translated into more favorable conditions for emerging market currencies, including the Malaysian Ringgit. The local currency opened at 4.4395/4500 against the US dollar, showing a slight improvement compared to last Friday’s closing rate of 4.4410/4455.

Performance Against Other Major Currencies

Despite the overall positive performance of the Ringgit against the US dollar, its value showed mixed results when compared to other major currencies. It depreciated slightly against the euro, slipping to 4.8306/8420 from 4.8194/8243 on the previous Friday. Similarly, the Ringgit weakened against the British pound, trading at 5.7407/7543 compared to 5.7404/7463 previously. The Japanese yen also saw a slight strengthening against the Ringgit, moving to 2.9888/9960 from 2.9809/9842.

However, the Ringgit made gains against several ASEAN currencies. It edged up against the Indonesian rupiah, trading at 271.5/272.2 from 271.6/272.0, and improved against the Thai baht, moving to 13.1798/2228 from 13.1820/2020. Against the Singapore dollar, however, the Ringgit saw a marginal decline, trading at 3.3292/3373 compared to 3.3241/3277 in the previous session.

Implications for Malaysian Exporters and Investors

For Malaysian exporters, the rise of the Ringgit against the US dollar can be seen as a positive development, especially for those dealing with USD-denominated trade. A stronger Ringgit allows exporters to receive more Ringgit per unit of US dollar income, thus improving their earnings when converting foreign currency back into the local currency. However, businesses with significant exposure to other major currencies, such as the euro or British pound, may face higher costs due to the Ringgit's depreciation against these currencies.

For investors, the current environment presents opportunities and risks. The Fed's ongoing deliberations on interest rate policies and the latest consumer sentiment data will likely continue to impact the forex market. As Dr. Afzanizam noted, the US central bank's stance on interest rates and inflation will be key to shaping future currency trends, including the outlook for the Ringgit.

Looking Ahead: The Path of the Ringgit

As the Malaysian Ringgit strengthens against the US dollar and the global economy remains in a state of flux, the outlook for the currency will depend largely on several key factors, including US economic data, global risk appetite, and the actions of the Federal Reserve. The potential for further rate cuts by the US central bank, coupled with easing concerns over a government shutdown, suggests that the Ringgit may maintain its positive momentum in the short term.

However, the forex market remains volatile, and the Ringgit's performance against other major currencies may fluctuate based on changing geopolitical events and economic data releases. Traders and investors alike will need to stay vigilant, especially as the global economic landscape evolves in response to these ongoing developments.

The Ringgit's higher opening on March 17, 2025, reflects a blend of improved global sentiment following the avoidance of a US government shutdown and weaker US economic data. While the immediate outlook for the Ringgit is positive, with expectations of further interest rate cuts by the Federal Reserve, market participants must remain attentive to upcoming data releases, especially from the US. As Dr. Afzanizam noted, "The US economic landscape and Federal Reserve policies will continue to play a pivotal role in shaping the Ringgit's trajectory in the coming months."

In the context of a potentially more dovish US Fed, the Malaysian Ringgit may experience continued support, especially against the US dollar, although risks remain from other major currencies and economic uncertainties. For now, Malaysia's currency stands to benefit from a less turbulent global financial environment.