Ringgit strengthens for 5th consecutive day amid US tariff uncertainty

[MALAYSIA] The Malaysian ringgit has experienced an upward movement against the US dollar for the fifth consecutive day. This recent strength of the local currency comes amid growing uncertainties regarding the United States' tariff policies. The combination of global trade concerns and shifting market dynamics has prompted traders and investors to reconsider their positions, ultimately bolstering the ringgit's performance. According to experts, the rise signals an optimistic outlook for the currency, at least in the near term.

Ringgit's Continued Strength

At 8 AM on March 7, 2025, the ringgit rose to 4.4185/4315 against the US dollar from 4.4230/4270 the day before. This slight appreciation comes on the heels of U.S. President Donald Trump's decision to delay tariffs on a range of products from Mexico and Canada under the US-Mexico-Canada Agreement (USMCA). This action has provided a temporary reprieve in trade tensions, which has led to a positive market sentiment, especially for emerging market currencies like the Malaysian ringgit.

Mohd Sedek Jantan, the head of investment research at UOB Kay Hian Wealth Advisors, shared his analysis, explaining that Trump's move to delay tariffs had helped ease near-term trade frictions, which in turn supported investor sentiment. He also noted that the widening of the US trade deficit, particularly with businesses bringing in goods in anticipation of tariff hikes, had added to global economic imbalances, reinforcing the current volatility in global markets.

"The temporary reprieve in trade tensions supports a more constructive outlook for the ringgit in the near term," said Jantan. His statement reflects the cautious optimism that has gripped investors, with many viewing the delay as a signal of easing tensions in the global trade war.

US Trade Deficit and Tariff Rhetoric

The U.S. trade deficit reached a record high in January, a key factor influencing market sentiment. Jantan attributed the growing deficit to businesses frontloading imports in anticipation of future tariff hikes, thus exacerbating external imbalances. The overall economic impact of these tariffs has been widespread, especially with Trump's renewed rhetoric in which he referred to Canada and India as "high-tariff nations." This rhetoric continues to signal ongoing trade policy uncertainty, which is a source of volatility in global markets.

Despite this uncertainty, the market's immediate reaction has been one of relief, as the temporary tariff delays offer a window of opportunity for investors to recalibrate their positions. This environment of unpredictability has kept many wary of riskier assets, including the US dollar. As a result, the ringgit and other emerging market currencies have become more attractive in comparison.

Bank Negara Malaysia's Monetary Policy Stance

In addition to the global economic context, domestic factors also play a role in the ringgit's performance. Dr. Mohd Afzanizam Abdul Rashid, the chief economist at Bank Muamalat Malaysia Bhd, pointed out that Bank Negara Malaysia (BNM) has shown a cautious stance regarding the global economy. While there is caution surrounding the global outlook, BNM’s Monetary Policy Committee has kept the Overnight Policy Rate (OPR) steady for the time being, signaling a stabilizing approach to Malaysia's monetary policy.

Dr. Rashid also provided a technical perspective, noting that the USD/MYR pair is currently in neutral territory, meaning that the ringgit could continue to trade within a narrow range. He suggested that the currency might oscillate around RM4.42 to RM4.43 against the US dollar, indicating a period of stability for the currency.

Ringgit’s Performance Against Other Currencies

The Malaysian ringgit has not only strengthened against the US dollar but has also made gains against other major currencies. The currency saw improvements against the Japanese yen, British pound, and euro. It rose to 2.9833/9922 against the yen from 2.9940/9969, firmed against the British pound to 5.6919/7087 from 5.6964/7015, and improved against the euro to 4.7662/7803 from 4.7773/7816.

Additionally, the ringgit exhibited strength against several ASEAN currencies. It appreciated against the Indonesian rupiah, edging up to 270.4/271.3 from 270.6/271.0. It also strengthened against the Thai baht, moving to 13.0880/1424 from 13.0939/1124, and improved against the Singapore dollar to 3.3147/3247 from 3.3186/3218. However, it remained unchanged against the Philippine peso at 7.71/7.73.

Implications for Malaysia’s Economy

The strengthening of the ringgit is a welcome development for Malaysia's economy, particularly for importers and businesses reliant on foreign goods and services. The stronger currency could ease inflationary pressures, helping reduce the cost of imports. Additionally, a more favorable exchange rate could benefit Malaysia's trade balance, potentially improving the country’s external economic position.

However, the situation remains fluid. The global economic landscape is still fraught with uncertainty, particularly with the ongoing trade tensions between the US and its key partners. The situation requires close monitoring, as sudden shifts in trade policies or tariff announcements could quickly reverse the ringgit's gains.

Outlook for the Ringgit

Looking ahead, analysts remain cautiously optimistic about the ringgit's performance. While the current relief from tariff uncertainty is a positive sign, the broader geopolitical climate is still volatile. As Jantan noted, the delay in tariffs offers a brief period of stability, but the ongoing rhetoric from President Trump suggests that trade policy uncertainties will persist. "There is still volatility in the global markets, and the situation remains uncertain," he said.

On the domestic front, the Malaysian government's careful management of the economy, along with BNM’s current policy stance, should provide a buffer against external shocks. However, much will depend on the continued resolution of the US-Mexico-Canada tariff dispute and any further escalations in global trade tensions.

The ringgit's rise for the fifth consecutive day amid US tariff uncertainty offers a glimpse of hope for Malaysia’s currency in the short term. While the trade situation remains fluid, the temporary easing of tariff frictions, coupled with positive sentiment toward emerging market currencies, has supported the ringgit's performance. The currency has also benefited from technical factors and the cautious approach of Bank Negara Malaysia’s monetary policy. Moving forward, market participants will continue to monitor developments closely, as both global and domestic factors will play a pivotal role in shaping the ringgit's trajectory.

In the meantime, the Malaysian ringgit’s resilience in the face of global uncertainties serves as a reminder of the intricate connections between international trade policies, investor sentiment, and local currency performance. As the world watches the evolution of tariff negotiations and global trade policies, Malaysia’s economy and its currency will likely remain in the spotlight.