KUALA LUMPUR: The ringgit settled at a 30-month high of 4.1815 against the US dollar as at noon, which puts it on track to ending the week as the world's top-performing currency.
The local currency has surged to its highest level since March 2022 following the 50 basis points rate cut by the Federal Reserve, which exceeded expectations of a 25bps reduction.
According to Kenanga Research's weekly ringgit report, domestic factors have also shored up the ringgit, including robust trade growth and government initiatives to boost foreign direct investment (FDI).
"The ringgit rally occurred despite the USD index remaining fairly anchored around the 100.6 mark and the 10-year Malaysian Government Securities (MGS)-US Treasury (UST) yield differential turning negative again due to a rebound in long-term UST yields," it said.
It noted that there are also expectations Bank Negara will keep the overnight policy rate at 3% for at least the next 12 months during the global rate-cutting cycle.
"After the Fed's larger-than-expected rate cut, we have revised our end-2024 USD-MYR forecast back to our initial target of 4.25/USD," said the research firm.
Over the coming weeks, Kenanga expects the ringgit to trade stronger in the 4.15-4.20 range, supported by Malaysia's favourable yield differential, especially compared to developed economies.
However, it expects the rally to ease to its end-year target as the Fed may not reduce the lending rate as steeply as the market currently projects.
In an email interview with national newswire Bernama, Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour affirmed analyst observations that the ringgit is being carried higher by the country's positive economic outlook and structural reforms.
"The ringgit's recent recovery is driven by the shift in expectations of lower interest rates in major economies, particularly the US, as well as Malaysia's strong economic performance.
"Malaysia's positive economic prospects and structural reforms, complemented by initiatives to encourage inflows, will continue to provide enduring support to the ringgit," he said.
