PETALING JAYA: Optimism surrounding the ringgit may be short-lived, with Maybank Investment Bank Bhd expecting the currency to weaken in the second half of financial year 2026 (2H26) amid a stabilising US dollar and shifting global market dynamics.
Maybank Singapore head of foreign exchange research Saktiandi Supaat said the ringgit is expected to outperform in 1H26, but gains could moderate later in the year as the US dollar “starts to pick up or stabilise a bit more” due to strong fundamentals.
“We expect the US Federal Reserve (Fed) to deliver two more rate cuts in 1H26, which should have a softening impact on the US dollar. However, the US dollar’s weakness could start to ease as we approach the middle of the year and into the end of the year.
“One factor driving this is the expectation that US President Donald Trump will shift his focus from trade to his voting base as the country moves closer to the November midterm elections,” he said during Maybank Investment Bank’s Malaysia 2026 Macro & Market Outlook briefing yesterday.
The investment bank expects the Fed to cut rates by another 50 basis points in 1H26, bringing the Fed funds rate to a “neutral” level of around 3% from the current 3.5% to 3.75% range.
Saktiandi expects the US dollar index (DXY) to fall about 2% in 1H26 before rebounding by 2% to 3% in 2H26 once the easing cycle concludes.
The DXY has traded largely below the 100-point level – a key psychological threshold – since late May last year. The index fell nearly 10% in 2025 but has risen 0.91% so far this year, although it remains below 100 at 99.126 as of press time.
Looking at historical trends, Saktiandi said the US dollar tends to be “directionless”, particularly against Asean currencies including the ringgit, in the lead-up to midterm elections, but tends to strengthen if the US president’s party loses control of Congress.
“There is some possibility of that, so we are factoring in some US dollar strength further down the line,” he said.
Saktiandi added that the US dollar also tends to stabilise at the end of an easing cycle – something he expects to occur in 2H26, given that Fed rate cuts are likely to take place through 1H26.
He cautioned, however, that the policy path remains data dependent.
Based on recent US labour market figures, there is a possibility of a pause before the two expected rate cuts are delivered.
“We will continue to look out for the composition of the Federal Open Market Committee, which may turn slightly more dovish depending on how the appointments fit in.
“Trump is also likely to install a new Fed chair. All these factors are important as it could lead to the possibility of further rate cuts.
“Our expectation is that the Fed could turn slightly more dovish as we approach the end of Fed chair Jerome Powell’s term.
However, concerns over potential pressure by the Trump administration on the Fed and its chairman could provide some upside support to the US dollar due to risk aversion,” Saktiandi said.
Trump has repeatedly criticised Powell for not cutting interest rates aggressively enough and has threatened to dismiss him, while stating that his eventual replacement would pursue aggressive rate cuts.
Tensions escalated last week following reports that the US Justice Department issued grand jury subpoenas to the Fed and several officials linked to a renovation project at the Fed’s headquarters. Powell’s term ends in May 2026.
Other factors supporting US dollar strength include renewed geopolitical tensions in global trade, particularly US–China relations, which are currently under a temporary trade truce until Nov 10, 2026.
“This could support the US dollar for the most part of 2026 and lead to some US dollar-Asian, including the US dollar-ringgit upside in 1H26,” Saktiandi said.
Looking ahead, Saktiandi identified two key wildcards for the US dollar: a potential US Supreme Court verdict on Trump-era tariffs and a stronger-than-expected Chinese yuan.
“We expect some of the support to come in from equity flows to prop up the Chinese yuan against the US dollar, alongside continued support from the People’s Bank of China, which is expected to underpin the Chinese yuan’s appreciation going into 2026.
“Meanwhile, expectations of the US Supreme Court’s ruling on the tariffs are a potential volatility trigger for the US dollar. The verdict could come in earlier this month.
“However, we think it is unlikely for the tariff refunds to be forced, with some ramifications on what the US dollar trajectory would be,” he said.
Despite near-term volatility risks, the ringgit is expected to hold its ground.
Saktiandi expects the US dollar–ringgit pair to trade between 4.05 and 4.00 in 1H26, with a risk of a temporary overshoot below 4.00, before ending 2026 at around 4.05 as the US dollar stabilises.
The ringgit strengthened nearly 10% against the US dollar in 2025 and is currently trading at about 4.06, its strongest level in almost five years.
“The ringgit remains among Asia’s better-positioned currencies in 1H26. Volatility may rise in 2H26, but structural support remains intact.
“Strong bond inflows in the early part of 2025 provided some support to the ringgit, and some of the fast money flows have also been supportive in 2026, which could continue in the short term,” Saktiandi said.
Relatively favourable real interest rates compared with regional peers and potential corporate foreign exchange conversions are also underpinning the ringgit’s resilience.
Saktiandi added that the currency’s strength reflects not just US dollar weakness, but also domestic fundamentals such as a strong trade position and expected foreign inflows supporting the balance of payments.
On the domestic economy, group chief economist Suhaimi Ilias of Maybank Investment Banking Group said Malaysia’s growth in 2026 will continue to be driven by domestic demand, supported by steady private consumption and a healthy pace of investment.
“Net external demand is still expected to be negative in terms of its impact on gross domestic product (GDP) growth, as imports of goods and services may continue to outpace exports,” he said.
“In terms of the outlook for consumer spending, income growth remains the key driver. Employees’ compensation — a component of GDP by income that is closely correlated with private consumption — is expected to continue growing.
“This is supported by public policy measures, including another year of record cash handouts to lower-income households, as well as the second phase of civil service pay and pension reviews.”
Tourism is also expected to support consumption. Suhaimi said travel receipts, tourist spending per capita and foreign credit card spending in Malaysia are all well above pre-pandemic levels.
Investment growth is expected to remain robust, with momentum from the current upcycle — based on 2025 data — likely to extend through 2027.
Key drivers include investments in semiconductors, data centres and cloud infrastructure, renewable energy projects such as grid upgrades and battery energy storage systems, and the expansion of industrial real estate and industrial parks.
At the global level, Suhaimi expects real GDP growth to slow to 2.8% year-on-year in 2026 from an estimated 3% last year. Malaysia’s growth is projected to ease to 4.5% from an estimated 4.7%.
“If last year’s slower global growth was due to the US slowdown, this year we expect US economic growth to stabilise, in part reflecting the impact of the Fed’s rate cuts as well as tax cuts under Trump’s budget,” he said.
Slower growth in China remains a key downside risk. Suhaimi said China’s growth is projected to moderate to 4.5% in 2026 from an estimated 4.9% last year.
“The slowdown this year in the Chinese economy is due to the return of inflation after the struggle with deflation that the country went through. The slower growth in China will to some extent affect Asean’s growth, although the region’s growth remains fairly resilient at well over 4%,” he said.
On equities, Maybank Investment Bank head of research Lim Sue Lin set a base-case FBM KLCI target of 1,730 for 2026, with upside potential to 1,850, implying a price-to-earnings multiple of 16 times.
Lim said upside would be driven largely by heavyweight stocks, particularly banks, followed by Gamuda and Tenaga Nasional Bhd
, supported by macro tailwinds and domestically driven themes. She also outlined a bear-case scenario of 1,550 amid geopolitical risks.
“In terms of earnings growth, we are projecting about an 8% increase in 2026, driven mainly by the banks. While bank earnings growth is expected to be only around 5%, the sector accounts for about 50% of total FBM KLCI earnings, making it a significant contributor. We also expect sectors such as construction and healthcare to continue delivering strong earnings growth this year,” she said.
Overall, Lim said, the themes shaping 2026 include infrastructure upswing, tech and industrial transformation, green transition and energy transition, domestic demand resilience, and state-driven activity like the Johor-Singapore Special Economic Zone in Johor and the Malaysia Vision Valley (MVV) 2.0 in Negri Sembilan.
As for investment strategy, Lim said any little corrections in the market could present opportunities to accumulate.
On whether 2026 could shape up as a pre-election play, Lim said investors should pay close attention to the announcement of Budget 2027 as it would be an indication of what an election play or pre-election play would be.
“In our view, typically for election plays, we would look at the consumer, infrastructure and banking sector,” she said.
