Cautious sentiment devalues the Ringgit

[MALAYSIA] The Malaysian Ringgit has seen a weakening trend against the US dollar as cautious market sentiment persists. This is largely attributed to uncertainty surrounding global financial data and a lack of significant domestic economic catalysts. On February 28, 2025, the Ringgit traded lower at 4.4530 against the US Dollar, down from the previous day’s closing range of 4.4410/4480.

Global Market Caution and the Impact on the Ringgit

A critical factor contributing to the Ringgit’s recent depreciation is the market’s cautious mood ahead of key economic data from the United States. According to Dr. Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, investors are waiting for the release of the Personal Consumption Expenditures (PCE) inflation data, which is the Federal Reserve’s preferred gauge of inflation. "On that note, the Ringgit could stay weak today, with the US dollar-Ringgit pair likely hovering around its immediate resistance level of RM4.45," Dr. Afzanizam stated.

This cautious sentiment reflects broader concerns among traders about the direction of US economic policy. The PCE data, which is closely watched by the Federal Reserve, can have significant implications for US interest rates. A higher-than-expected inflation reading could prompt further tightening of US monetary policy, potentially strengthening the US dollar and putting additional pressure on emerging market currencies like the Ringgit.

Lack of Local Catalysts for Growth

While Malaysia's economic fundamentals remain robust, the Ringgit has been further weakened by a lack of significant local economic catalysts. As Dr. Afzanizam points out, there has been a marked decline in foreign investor activity, with net outflows from Malaysia’s equity markets in February reaching RM1.5 billion. This follows a pattern of negative foreign fund flows observed in recent months, with RM3 billion in net sales recorded in January. For five consecutive months, foreign investors have been net sellers in the Malaysian equities market, signaling a waning confidence in the local financial markets.

Despite these outflows, there is some positive news in Malaysia’s bond market, which has shown better performance relative to the equity market. However, the systemic risk posed by continued foreign equity outflows remains a concern for the Ringgit’s outlook.

Regional Trends and the Broader Market Context

The weakness in the Ringgit against the US Dollar is not an isolated issue. Dr. Afzanizam also pointed out that other regional markets are experiencing similar foreign capital outflows. For instance, in February 2025, India saw a net outflow of US$2.72 million, Indonesia faced US$452.1 million in outflows, South Korea lost US$605.6 million, and Taiwan saw US$110.4 million in foreign investor withdrawals.

This trend of capital flight from emerging markets can exacerbate currency weaknesses, especially as global investors seek safer assets amid economic uncertainty. The Ringgit, along with other Southeast Asian currencies, faces downward pressure as investors become more risk-averse.

While the Ringgit has weakened against the US Dollar, it has shown some strength against other major currencies. On February 28, the Ringgit appreciated against the British Pound, climbing to 5.6090/6317 from the previous day’s 5.6303/6392. It also strengthened against the Euro, rising to 4.6284/6472 from 4.6559/6633. However, the Ringgit experienced a slight decline against the Japanese Yen, easing to 2.9657/9779 from 2.9634/9683.

In the ASEAN region, the Ringgit saw mixed results. It strengthened against the Singapore Dollar, appreciating to 3.3015/3153 from 3.3122/3177, and also rose against the Thai Baht, climbing to 13.0636/1241 from 13.0964/1240. However, it weakened against the Philippine Peso, slipping to 7.69/7.73 from the previous close of 7.67/7.69, and also declined against the Indonesian Rupiah, falling to 270.5/271.8 from 269.8/270.4.

Economic Fundamentals Remain Strong

Despite these challenges, Malaysia’s economic fundamentals remain strong, which could support the Ringgit in the longer term. The country has demonstrated resilience in its macroeconomic performance, with robust trade figures and a solid growth outlook. Dr. Afzanizam emphasized that the weakness in the Ringgit is not a reflection of the country’s underlying economic health, but rather a product of global factors and regional market dynamics.

The Malaysian economy continues to benefit from a diversified export base, particularly in manufacturing and commodities. Additionally, Malaysia’s relatively strong fiscal and monetary policies provide a foundation for future economic stability. However, continued foreign investor outflows may weigh on investor sentiment, especially if the global economic environment remains uncertain.

The Ringgit’s recent weakness against the US Dollar can be attributed to a combination of cautious market sentiment and the lack of significant domestic economic catalysts. The global economic climate, particularly the uncertainty surrounding US inflation data, has led to a risk-averse mood among investors, contributing to capital outflows from Malaysia’s equity markets. Despite these challenges, Malaysia’s strong economic fundamentals and the mixed performance of the Ringgit against other major currencies suggest that the currency may find support in the medium to long term, provided there is a stabilizing shift in global market conditions.

As the situation unfolds, both local and international investors will continue to monitor key economic data and policy developments, which will likely play a decisive role in shaping the Ringgit’s trajectory against the US Dollar in the coming months.