Kenanga Research said Malaysia offers “one of the most attractive risk-adjusted carry profiles in emerging Asia”.
PETALING JAYA: While episodic global volatility may introduce temporary swings, the combination of policy credibility, export inflows and favourable carry dynamics underpins a bullish medium-term outlook for the ringgit.
Kenanga Research expects the US dollar–ringgit pair to end 2025 at 4.08, reflecting steady trading conditions and year-end positioning, and for the ringgit to grind firmer to around 3.95 per US dollar into 2026.
“The ringgit’s firm profile is underpinned by sustained foreign inflows into Malaysian bonds as investors seek higher-yielding, creditable emerging-market assets,” the research house said in a report yesterday.
Kenanga Research said foreign currency deposits, which surged to a record high of RM300.9bil in September before easing to RM288.9bil in October, reflect sustained exporters’ repatriation and provide an additional layer of support to the ringgit.
“Based on our estimates, a 10% reduction in these deposits could lift the ringgit by roughly 3% against the US dollar,” the research house said.
In particular, the ringgit looks to continue to benefit from the country’s stable macro backdrop, ongoing structural reforms and selective investor flows as global uncertainty lifts US Treasury term premia.
Kenanga Research said while the real yield differential versus the US remains modest, Malaysia offers “one of the most attractive risk-adjusted carry profiles in emerging Asia”.
“Only Malaysia and China sit in the Single-A sovereign bracket, compared with most peers rated BBB.
“This translates into a 20% Basel risk weight versus 50% for lower-rated peers.
“Also, Malaysia’s bond market relative to gross domestic product remains the largest in South-East Asia and almost entirely ringgit denominated and domestically held, reinforcing confidence in both carry and convertibility,” the research house said.
Kenanga Research said US dollar weakness is likely to reassert itself beyond early 2026, with the US Dollar Index (DXY) expected to drift towards the 93 to 94 range by the end of 2026 as structural support erodes.
Near-term support for the US dollar, however, should persist, with the research house expecting the scope for a modest rebound in the DXY to the 99 to 99.5 range in the first quarter of financial year 2026.
“Fiscal policy remains growth supportive, notably through the One Big Beautiful Bill, which should lift activity both cyclically and structurally.”
The research house added that artificial intelligence-related capital expenditure continues to underpin productivity and investment.
“With disinflation proceeding in an orderly manner, the Federal Reserve (Fed) has little incentive to signal aggressive easing,” Kenanga Research said, adding that this supports front-end yields and limits near-term downside pressure on the US dollar.
“Geopolitical tensions in Asia may also revive safe-haven demand.
“Positioning remains moderate, allowing the US dollar to retain some momentum before the broader downtrend resumes,” it said.
The research house’s view of near-term support for the US dollar is anchored by its expectation that the Fed’s first rate cut will come later, in March rather than January.
Market pricing also points to a later second cut in 2026 to July or September, later than Kenanga Research’s June call.
Beyond that, there is likely to be further easing by the Fed through 2026 as other major central banks approach the end of their cutting cycles.
Other factors include greater hedging of US exposures amid decline in foreign exchange hedging costs for eurozone investors, political and institutional uncertainty around the Fed’s independence, as well as renewed unwinding of yen-funded carry trade, which are expected to amplify downward pressure on the US dollar.
Furthermore, Kenanga Research cautioned that “large-scale quantitative easing or yield curve control remains a tail risk rather than a base case, but it is no longer implausible”.
“The Fed would escalate from short-bill operations to long-duration purchases if market credibility or functioning breaks down,” the research house said.
“Triggers include a sustained rise in long-term yields driven by term premia rather than stronger growth, a failure in Treasury or repo market plumbing, or doubts about policy independence under new leadership.”
This in turn is expected to result in incremental flows into safer or higher-yielding Asian currencies, including the ringgit, as the United States carry advantage fades and elevated US term premia erode the relative appeal of dollar assets.
