Ringgit strengthens against US Dollar and ASEAN currencies ahead of GDP data

[MALAYSIA] The Malaysian ringgit has gained ground against the US dollar and other ASEAN currencies as it opens higher in the early hours of trading today, reflecting investor optimism and expectations ahead of the release of Malaysia's GDP data for the fourth quarter of 2024. As the country's economic performance continues to remain in focus, experts suggest that the ringgit’s upward momentum could persist as markets await the crucial economic data.

The Ringgit’s Upward Trajectory

At the opening bell today, the Malaysian ringgit surged to 4.4325/4555 against the US dollar, improving from the previous day’s close of 4.4535/4600. This early appreciation of the ringgit is a positive sign for investors and analysts alike, as it hints at potential continued strength in the local currency over the short term.

The strengthening of the ringgit comes amidst favorable market conditions, as the US dollar itself has been weakening. The US Dollar Index (DXY), which tracks the performance of the dollar against a basket of major currencies, dropped by 0.58% to 107.313 points. This softening of the US dollar is one of the main factors contributing to the appreciation of the ringgit, particularly as it directly affects currency pairs like the US dollar/ringgit.

Dr. Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, noted that the early performance of the ringgit signals positive expectations ahead of the GDP release, especially as Malaysia is poised to reveal strong economic growth numbers for the fourth quarter of 2024. Experts are projecting a growth rate of 4.8% for Q4, a significant recovery after a slightly subdued third quarter.

Additionally, Bank Negara Malaysia's (BNM) stance on interest rates also plays a role in the outlook for the ringgit. Dr. Mohd Afzanizam suggested that there is a possibility that Bank Negara Malaysia will keep its Overnight Policy Rate (OPR) at the current level of 3.00%, given the anticipated growth figures. The stability in monetary policy would likely support the ringgit, especially against ASEAN currencies that have been affected by central banks’ loosening measures.

"Malaysia's GDP growth figures suggest strong economic performance," Dr. Mohd Afzanizam remarked. "This, coupled with a steady monetary policy from Bank Negara Malaysia, could be key to maintaining the ringgit's strength in the coming months."

The Role of ASEAN Currencies

The ringgit’s performance is not only notable against the US dollar but also in comparison to other ASEAN currencies. On this front, Malaysia's currency has shown positive movements, appreciating against several key regional currencies. The ringgit strengthened against the Singapore dollar, Indonesian rupiah, Thai baht, and Philippine peso. This trend reflects Malaysia’s favorable economic outlook compared to some of its regional counterparts.

In contrast to Malaysia’s positive growth outlook, other ASEAN nations are grappling with their own economic challenges, which have led to weaker currencies. Some ASEAN central banks have taken accommodative stances, including lowering interest rates, in a bid to support economic activity amid global uncertainty. This divergence in monetary policy has further aided the ringgit in gaining ground against its ASEAN peers.

For example, the Thai baht has experienced significant volatility in recent months, exacerbated by domestic political uncertainty and slower economic growth. In comparison, Malaysia’s economic stability, as indicated by the expected 4.8% growth in Q4 2024, has positioned the ringgit more favorably in the region.

The ringgit also enjoyed a marginal appreciation against the euro, improving to 4.6373/6613 from 4.6419/6487. This suggests that, while the local currency is benefiting from a weaker US dollar, it is also gaining from relatively stable global economic conditions.

The GDP Data Release

At the heart of the ringgit's positive performance today is the anticipation surrounding Malaysia’s GDP data for Q4 2024. The country’s growth figures are expected to show a strong recovery, with a forecast of 4.8% growth in the final quarter of the year. This comes after a mixed performance in Q3, when the economy grew at a slower rate of 3.8%.

The growth rate for the full year of 2024 is also expected to be positive, with projections pointing towards a 5.1% increase. This would mark a notable recovery from the challenges faced in the previous year, as Malaysia navigated global economic uncertainties and internal factors. Experts expect that these strong growth figures will reflect robust domestic demand, supported by improved consumer spending, strong exports, and recovering investments.

"The strong GDP figures would indicate that Malaysia's economic recovery is on track, despite global challenges. The ringgit's performance today is in line with this optimism," Dr. Mohd Afzanizam added.

The GDP data release scheduled for later this week will be a key event for both the local currency and broader financial markets. The data will offer a clear picture of how the Malaysian economy has performed and will influence future policy decisions by Bank Negara Malaysia, particularly with regard to interest rates.

External Influences: The US Dollar and Global Markets

The US dollar’s performance is another critical factor shaping the ringgit’s current strength. In recent days, the dollar has been weakening, primarily driven by softer-than-expected economic data in the US, particularly concerning inflation and job reports. The softer US dollar has resulted in a ripple effect across emerging market currencies, benefiting those like the ringgit.

The weakening dollar comes on the heels of investor concerns regarding global inflation, interest rates, and the potential for economic slowdowns in major economies. As investors seek safer assets, the weakening dollar and its effect on emerging market currencies, including the ringgit, has been a key trend in global markets.

Moreover, the global outlook remains cautiously optimistic, with analysts expecting the global economy to navigate past the most severe risks of inflation and recession. As the US dollar softens, emerging market currencies like the ringgit stand to benefit from this global shift in sentiment.

Outlook for the Ringgit

Looking ahead, analysts are bullish about the ringgit’s prospects, especially if Malaysia’s GDP data confirms strong growth in Q4. With domestic economic factors supporting the local currency, coupled with a weaker US dollar, the ringgit has a solid foundation for sustained strength.

Dr. Mohd Afzanizam mentioned that the ringgit could continue its positive trajectory, especially if it breaks through its immediate resistance level of RM4.45 against the US dollar. "With the current economic conditions and global trends, the ringgit is poised for further gains, particularly as investors maintain a positive outlook on Malaysia’s economic recovery."

In the broader context, the ringgit’s movement is not only tied to local factors but is also heavily influenced by global developments. Factors such as the US Federal Reserve’s monetary policy stance, oil prices, and geopolitical risks will continue to play a significant role in shaping the currency's outlook in the medium to long term.

The Malaysian ringgit’s early performance against the US dollar and ASEAN currencies signals positive market sentiment, driven by strong expectations for Malaysia's GDP growth in Q4 2024. The strengthening ringgit reflects confidence in the country’s economic prospects, as it is expected to grow at a rate of 4.8% in the last quarter of 2024, bringing the full-year growth projection to 5.1%.

The softer US dollar, coupled with Malaysia’s favorable economic outlook and stable monetary policy from Bank Negara Malaysia, provides a supportive environment for the ringgit. As markets await the official GDP data release, all eyes will be on how the local currency continues to perform in the context of both regional and global economic conditions.

As Malaysia's economic recovery strengthens, so too will investor confidence in the ringgit, positioning it for potential further gains in the coming weeks and months. However, the overall trajectory will remain dependent on the final GDP numbers and external market factors.

For now, Malaysia's economic resilience is clearly reflected in the ringgit’s early positive performance, making it an interesting currency to watch in the ASEAN and broader emerging markets.