PETALING JAYA: The ringgit could continue to trade with a slight upward bias, suggesting underlying strength amid ongoing geopolitical concerns.
The local currency rose in early trade yesterday, jumping 135 basis points to the 3.96 level against the US dollar at the open, following improved global risk sentiment.
Near the close in the evening, the dollar-ringgit pair was hovering around 3.9550, a level last seen three weeks ago.
Investors appear to have priced in the worst of the Iran war for risk assets for the time being, although Brent crude oil remains close to the key psychological US$100 per barrel level, trading at US$98.72 amid supply uncertainties.
This comes as the US naval blockade of all Iranian ports and coastal areas came into effect on Monday night (Malaysian time), though it still allows most ships to transit the Strait of Hormuz if they are traveling between non-Iranian ports.
Risk sentiment also appears to have improved on expectations that alternative oil and gas supplies could help offset any immediate shortfall from the Strait of Hormuz.
These include tankers that are now temporarily sourcing crude from the US Gulf Coast, while some demand is still being met through Saudi Arabia’s East-West oil pipeline, which enables shipments via the Red Sea.
Maybank Investment Bank Research (Maybank IB), in its report yesterday, said the ringgit remains resilient against the US dollar on reports suggesting US-Iran talks may continue.
It noted that the local unit has been and should continue to be resilient, with resistance levels at 4.0000 and 4.0500, and support zones at 3.9500 and 3.9000.
IPPFA Sdn Bhd investment strategy director and country economist Mohd Sedek Jantan said he remains constructive on the ringgit, supported by firm underlying fundamentals and improving global risk sentiment on any progress in US-Iran negotiations.
However, the outlook for further improvement remains fragile, given recent talks that have failed to yield the desired outcomes.
“The clear driver is progress. While the situation is not fully resolved, any positive developments are likely to reduce risk-off sentiment and potentially encourage a rotation into emerging-market currencies from the safe-haven US dollar.
“In our baseline, we expect geopolitical tensions to ease over the next three to six months, which should see Brent crude stabilising below the US$85 to US$90 per barrel range,” Mohd Sedek told StarBiz.
Against this backdrop, he said the ringgit is expected to trade within RM3.88 to RM3.95 against the US dollar, with a modest appreciation bias.
“The (local) currency remains relatively well-positioned in Asia, underpinned by a strong external balance, commodity-linked support, and resilient domestic demand.”
Mohd Sedek pointed out that support is further reinforced by firmer energy export revenues, continued foreign inflows into the domestic bond market, and a contained interest-rate differential, as the US Federal Reserve (Fed) maintains rates at 3.5% to 3.75%, while Bank Negara Malaysia keeps its policy rate at 2.75%.
“That said, the outlook remains highly sentiment-driven. Even incremental progress in geopolitical de-escalation could accelerate inflows into risk assets, reinforcing ringgit strength in a more pronounced risk-on environment,” he noted.
Socio-Economic Research Centre (SERC) executive director and economist Lee Heng Guie said while the economic fundamentals and structural reforms remain supportive of the ringgit, pressure persists from external shocks stemming from the Middle East conflict, as well as uncertainty over the Fed’s future monetary path.
SERC’s base case expects the ringgit to trade in the RM3.90 to RM3.95 per US dollar range until the second quarter of 2026.
Commenting on the US Dollar Index (DXY), Maybank IB said its US foreign- exchange macro model flashed a bearish signal for the US dollar last week, suggesting a potential fundamental vulnerability in the greenback.
“It may make the greenback more susceptible to a decline in times of market volatility and limits the room for gains. Although significant uncertainty lingers, we continue to look for the DXY to remain within the 98-100.50 range.
“Momentum is increasingly bearish but as we have mentioned before, a bullish crossover is seen. Technical signals are a little mixed,” it explained.
“The convergence of the moving averages had been happening over the past few months as the DXY was not able to make a decisive breakout in either direction.
“A convergence of moving averages may mean a breakout but direction-wise, this is hard to pinpoint as the 50-day moving average is enroute to make a bullish crossover of the 100- and 200-day moving averages,” Maybank IB added.
Meanwhile, SPI Asset Management managing partner Stephen Innes said risk sentiment may be rebuilding its base.
“Step into the gap and lean against the noise – in other words, fade the panic. It has not just worked, it has paid handsomely week in and week out.
“That rhythm is not a coincidence. It is the market revealing its hand, showing that positioning remains tilted toward caution on the surface while conviction quietly rebuilds underneath,” Innes said.
