PETALING JAYA: The ringgit is in a bright spot to continue its strengthening trajectory against the US dollar going into 2026 buoyed by several key drivers, according to economists and foreign-exchange strategists.
Most of these experts project the US Federal Reserve (Fed) to slash its benchmark rates – US federal funds rate – by next year, which would propel the local currency to strengthen against the greenback.
They are forecasting the ringgit to trade between the range of RM3.93 and RM4.15 against the US dollar moving into 2026, although there could be headwinds which could impact the local currency’s performance
The Fed at its Federal Open Market Committee last month lowered its benchmark lending rate by 25 basis points (bps) to a range between 3.75% and 4%, the lowest in three years.
According to a Reuters poll, 80% of economists expect the Fed to again lower its key interest rate by 25 basis points next month to underpin a weakening labour market.
Malaysia’s strong economy and ongoing fiscal consolidation by the government are other drivers that would strengthen the local currency against the US dollar moving into 2026, economists noted.
The nation’s gross domestic product (GDP) growth expanded by 5.2% in the third quarter of financial year 2025 (Q325) up from 4.4% growth in 2Q25.
Based on official estimates, the economy is projected to grow between 4% and 4.8% for this year and 4% to 4.5% for 2026.
Last Friday, the ringgit closed marginally lower against the US dollar as the market saw a mild correction following recent gains despite supportive domestic economic data.
At 6pm last Friday, the ringgit edged down to 4.1290/1345 versus the greenback from last Thursday’s close of 4.1260/1300, Bernama reported.
Taking an upbeat view, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz the Fed is likely to cut rates further into 2026, and foresees the ringgit to end the year between RM4.10 and RM4.15, and between RM4.05 to RM4.10 in 2026.
“Apart from the Fed, the resilience of the Malaysian economy will mean that Bank Negara Malaysia (BNM) has the leeway to keep the overnight policy rate steady in 2026.
“At the same time, the ongoing fiscal consolidation would mean the federal government finances are expected to improve further.
“This would translate into positive assessment among the credit rating agencies such as Moody’s Ratings, S&P Global Ratings and Fitch Ratings.
“This would attract foreign funds to have more exposure in the government bonds whereby sizeable inflows have been recorded this year. All this would support the value of the ringgit going forward,” Mohd Afzanizam said.
MARC Ratings Bhd chief economist Ray Choy, said the Malaysian ringgit is likely to maintain its strengthening trajectory through mid-2026, and is retaining his 2Q26 forecast of RM3.93 to the US dollar.
He said this view is underpinned by three reinforcing dynamics. Firstly, he said global monetary conditions are shifting decisively in Malaysia’s favour.
“We expect the Fed to deliver a further rate cut by end-2025, followed by up to three additional cuts in 2026, while BNM is likely to cut only once over the same period.
“This policy divergence will improve US–Malaysia interest rate differential and relative carry dynamics, supporting sustained ringgit appreciation.
“Furthermore, other advanced economies’ central banks are also expected to loosen monetary policy, such as the European Central Bank, Bank of England, and Bank of Japan,” Choy said.
Secondly, he said Malaysia’s macro-structural backdrop continues to improve.
Fiscal consolidation is advancing via a narrower deficit trajectory, stronger tax revenue collection, and the ongoing retargeting and rationalisation of subsidies, with further recalibration expected in 2026, he said.
“Thirdly, growth and external-sector fundamentals are turning constructive.
“GDP has been expanding above historical trend, supported by rising foreign direct investment (FDI) inflows and strengthening gross fixed capital formation,” he noted.
Meanwhile, Choy said the external sector appears to have bottomed in 2025, with improving trade conditions in 2026 expected to support a firmer net export position, aided by easing pressure from US tariffs and stabilisation in global demand.
While tariff negotiations remain challenging, he said some progress was made following the Asean Summit and US President Donald’s Trump’s tour of Asia.
Meanwhile, OCBC foreign-exchange strategist Christopher Wong, who is expecting the ringgit to hover at around RM4.10 against the US dollar in 2026, said he sees room for ringgit recovery to continue.
This comes on the back of various factors, he noted. He said the country’s domestic fundamentals remain promising, supported by robust quality FDI, resilient growth, and wider trade surplus.
“Commitment to follow through fiscal consolidation also provides reassurance and strengthens foreign investor sentiment.
“This can also improve the prospects of portfolio inflows. To some extent, markets may also find confidence from policymakers’ explicit mention of the US dollar-ringgit exchange rate going below in the next four to 12 months.
“In terms of external factors, a more resilient yuan is helping to anchor relative stability in the ringgit while the Fed resuming the easing cycle is also helpful, “ he noted.
To some extent, Wong said he does not rule out the risk of increases in hedge ratios or faster conversion of export earnings (in foreign currency) should the ringgit’s strength continue.
This may create or have already created a feedback loop for the ringgit’s sharp appreciation of late, Wong added.
On the challenges that may affect the ringgit’s strength, he said risk sentiment, global growth conditions, policy risks can be some of the drivers that may temporarily affect the appreciation trend.
The path of the local currency is also dependent on external factors including the US dollar trends and the yuan’s policies, he said.
Wong said a more entrenched US dollar bear trend and further appreciation in the yuan can potentially amplify the ringgit’s strength.
On the contrary, if global growth is hit or risk sentiment turns for the worst, then the ringgit may face depreciation pressure.
RAM Rating Services Bhd senior economist Woon Khai Jhek said the ringgit’s performance in 2025 has been shaped by a confluence of global and domestic factors.
He said the biggest factor among them is the shift in US monetary policy, which had been much anticipated since the start of the year.
Woon said this saw a surge in foreign buying of Malaysia bonds in 2Q25, which soon after retreated in 3Q25 as the Fed rate cut bets eased as investors repriced for the possibility that the magnitude of rate cuts might not be as forthcoming.
“However, since early October, we’ve seen a notable reversal in capital outflows, with foreign investors returning to Malaysian bonds after several months of subdued interest.
“This renewed inflow, while not yet restoring foreign holdings to their previous peak, has underpinned the ringgit’s strong improvement in recent weeks.
“A key driver behind this resurgence is a stronger signal of US monetary policy easing.
“The US Fed’s move towards rate cuts has led to falling US Treasury yields, which decreases the appeal of the greenback, leading to the broad-based weakening of the US dollar.
“Falling US Treasury yields led to a narrowing spread between US Treasury’s and Malaysian Government Securities.
“This makes Malaysian assets more attractive from a yield perspective. This helped support the appreciation of the ringgit against the US dollar,” Woon said.
Besides that, he said the market has turned against the dollar, driven by expectations of further Fed rate cuts.
Woon is projecting the ringgit to average between RM4.25 and RM4.35 against US dollar in 2025, and expects the ringgit to average between RM4.15 and RM4.25 against the greenback in 2026.
“While a favourable Malaysia-US interest rate gap should support the ringgit as the Fed cuts rates, most US rate cut expectations are likely already priced in, limiting further appreciation unless US rates drop more than expected.
“Furthermore, recent ringgit gains reflect both a weaker US dollar and stronger local fundamentals. Ongoing uncertainties in the United States have prompted funds to seek other high-yielding assets abroad, positioning Malaysia as a key beneficiary.
“As confidence in the United States market gradually recovers and treasury yields adjust to a level palatable to risk-averse investors, some dollar strength may return,” Woon noted.
