PETALING JAYA: The ringgit touched the RM3.96 mark against the US dollar yesterday, a level not seen since June 2018.
This keeps the ringgit as Asia’s best performer, outperforming major currencies including the Japanese yen and Singapore dollar.
Broad US dollar weakness, improving regional sentiment, and a host of domestic fundamentals are said to be underpinning the ringgit’s surge.
Yet, while the rally sparks optimism, its staying power beyond the first half of financial year 2026 (1H26) is unclear, with analysts urging caution on its momentum in 2H26.
Tradeview Capital fund manager Neoh Jia Man said the ringgit’s appreciation is still largely a dollar story, driven by expectations that the upcoming new Federal Reserve (Fed) chair appointee could usher in a more dovish rate-cut cycle.
Fed chair Jerome Powell’s leadership term ends in May, and US President Donald Trump is now expected to nominate a new Fed chair within days.
Neoh said the ringgit’s further upside potential is “limited” after the sharp rally it posted in recent weeks.
“Looking at Bloomberg consensus, the ringgit has already hit its year-end target of 4.00 against the US dollar.
“At current levels, it is already trading stronger than the consensus forecast, so further upside will not be that much,” he told StarBiz.
While that may be the case, Neoh is expecting the US dollar-ringgit pair to maintain at current levels and end the year at around 3.90.
One foreign exchange (forex) specialist, however, opined the ringgit may have “seen the best of it” already and that the US dollar may not weaken as much as the market is pricing in at the moment.
He added the ringgit may see gradual weakness against the US dollar, starting from the second quarter of 2026.
The possibility of more aggressive rate cuts in the United States, possibly under the new Fed chairman, could fuel a rally in US Treasuries.
This would lend greater support to the US dollar, which in turn is disadvantageous to the ringgit and other regional currencies.
On the other hand, iFAST Capital research analyst Kevin Khaw Khai Sheng argued the long-term risk premium of the United States has increased tremendously, and hence the attractiveness of US Treasuries “might not be that appealing like what we used to experience anymore”.
Khaw cautioned that while the earnings potential of US equities is massive, valuations are stretched at the moment.
“We expect flows to rotate into emerging countries, such as Malaysia or other Asian economies. Overall, we are more positive on the Asian region given the current prospects,” he said.
Khaw said the ringgit strength this year will depend on Malaysia’s economic growth, the upcoming Fed chair’s tone, and foreign inflows into Malaysian capital markets.
In addition, he said the strong momentum in the bond market in recent times has provided support to the ringgit.
“But should inflation spike higher (not our base case), the Malaysia Government Securities yield curve would likely steepen further, which could translate into a potential retreat in the ringgit,” he said.
For the week ended Jan 23, foreign investors remained net buyers of Malaysian equities for a third consecutive week, recording RM510.9mil in net foreign inflows, but reflects a decline from the prior week’s RM716.1mil.
Further, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said one downside risk for the ringgit’s trajectory is a more hawkish Fed, even with a newly appointed chair.
“The Fed may want to keep its monetary policy stance tight by maintaining the Fed Funds Rate at the prevailing level or may increase interest rates since inflation rate is still high. This can lead to a stronger US dollar, and by that extension a weaker ringgit,” he said.
Afzanizam also expects there to be profit taking along the way for the ringgit as traders would want to cash in their gains. Moreover, market corrections may arise given as the ringgit seems to be overbought.
“From the moment the ringgit peg was removed on July 21, 2005 to Jan 26, 2026, the average level of the greenback and ringgit is about RM3.8219. In that sense, there is still room for the ringgit to appreciate further.
“Will it lose steam? Intermittently, there shall be market corrections as traders would want to cash in their gains.
“The technical indicators also seem to suggest that the ringgit is already in the overbought situation. In that sense, corrections could happen. Foreign exchange market is not and never linear,” he said.
The broad US dollar index (DXY) remains under downward pressure, having fallen below the 98.00 handle.
The index stood at 97.076 at press time and is down nearly 1.18% year-to-date.
The next leg for the US dollar — and by extension the ringgit — may also hinge on moves in the greenback and yen.
Markets are on guard for possible forex intervention by the Japanese government to arrest the currency’s slide, a risk that could keep the greenback on the back foot and support the ringgit’s upside bias.
“Currently, the main focus now is on the yen, where the currency has weakened considerably last week against the US dollar following the announcement of a snap election in Japan, to be held on Feb 8.
“This took a serious toll on the yen as election promises are generally populist in nature,” Afzanizam said.
He said the situation does give “a sense of a Liz Truss moment” whereby the former UK Prime Minister promised unfunded tax measures which led to her resignation after helming the country for 44 days in 2022.
“So the Japanese govt and the US Fed Bank of New York are expected to make a direct intervention to arrest the slide in the yen against the US dollar. This effectively means the US dollar will weaken further,” Afzanizam said.
To this end, MUFG said in a report yesterday that Japanese officials have refrained from clarifying whether forex intervention has occurred, leaving markets wary, and that overall, “the balance of risks may point toward US dollar vulnerability”.
In a way, Afzanizam noted, a weaker dollar also bodes well for the United States as Trump wants to reduce trade deficits.
Rather than being largely a dollar story, IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the ringgit’s strengthening has shifted from being Fed-dependent to being domestic-fundamentals driven.
As such, Mohd Sedek expects the ringgit to continue appreciating against the greenback in 1H26 and remain stable — rather than weaken — in 2H26, as domestic fundamentals continue to have the upper hand in the ringgit’s narrative.
“Malaysia is now being read by global houses as a relative outperformer within Asia, not just a cyclical rebound story. “Importantly, the anticipated Fed easing is not the primary driver of the ringgit’s performance. Even as US rates adjust, Malaysia’s relative monetary stability, improving growth visibility and contained inflation dynamics provide a more durable anchor for the currency.
“This marks a shift from a Fed-beta currency to one increasingly priced on domestic fundamentals, creating room for further appreciation even as global monetary conditions evolve,” he said.
Against regional currencies, the ringgit appreciated by 0.86% against the British pound on a year-to-date basis, 2.92% versus the Indonesian rupiah, 2.47% against the Philippine peso, 0.30% against the Japanese yen, 1.02% versus the Singapore dollar, 0.88% against the Thai baht and 1.33% against the euro.
Goldman Sachs, in a statement on the Singapore dollar and ringgit trade yesterday, recommends buying the ringgit and selling the Singapore dollar, as it expects the ringgit to “outperform in Asia”.
The investment bank cited tech exports, foreign direct investments and expected unchanged overnight policy rate to underpin the ringgit’s strength this year.
“This shows that markets are pricing Malaysia less as a “China proxy” and more as a semiconductor and artificial intelligence-adjacent manufacturing hub, and a beneficiary of supply-chain re-routing.
“Policy consistency is also an asset now. Malaysia is being quietly reclassified into that “quality emerging markets Asia” bucket,” he said.
