PETALING JAYA: The direction of the ringgit heading into the second half of financial year 2026 (2H26) will largely rest on developments in the United States, economists say.
In 1H26, the currency stayed broadly stable, ranking as the second-best-performing currency among its major Asian peers during the period, ranking only behind the Chinese yuan.
IPP Global Wealth director of investment strategy and country economist Mohd Sedek Jantan expects the ringgit to remain resilient in 2H26, though its appreciation outlook is expected to depend less on Malaysia than on happenings in the United States.
“Over the past year, movements in dollar-ringgit have been driven primarily by shifts in US interest rate expectations rather than domestic economic data,” he told StarBiz. “The key variables investors should keep an eye on in 2H26 are US inflation, US Federal Reserve (Fed) policy guidance, US Treasury yields and global risk sentiment.
“If US inflation moderates more quickly than expected and the Fed signals an earlier easing cycle, the US dollar could weaken, allowing the ringgit to appreciate.”
Conversely, upside for currencies such as the ringgit may be limited should US inflation prove to be persistent and the Fed keeps interest rates higher for longer, as US Treasury yields are likely to remain elevated, sustaining demand for US dollar assets.
“We expect the Fed to maintain a restrictive monetary policy stance, while Bank Negara Malaysia is likely to keep the overnight policy rate unchanged at 2.75% amid inflation of around 2%,” Mohd Sedek said.
As a result, the wider US-Malaysia interest rate differential should continue to support US dollar assets, constraining further appreciation of the ringgit.
Tradeview Capital chief executive officer and founder Ng Zhu Hann echoed that the ringgit’s next movements will hinge on whether the Fed cuts or hikes interest rates.
He noted that while markets had factored in two Fed rate cuts at the start of the year, the current market consensus is now leaning towards one rate hike.
But assuming that there’s a resolution to the Middle East war, the ceasefire is extended, and inflation and oil prices come down, Ng said it is very likely they will continue on the projected rate cut path.
“From the start of the year, our full-year target for the ringgit against the US dollar exchange has been RM3.90,” he said.
However, he stressed that the call would be contingent on the Middle East conflict easing, as Malaysia, a net oil importer, continues to be affected by the highly fluid geopolitical situation.
“If the war subsides or the ceasefire continues, Brent crude oil prices are expected to retrace to about US$70 to US$75, and as such, RM3.90 would be our year-end target.”
Nevertheless, he highlighted Malaysia’s resilient underlying gross domestic product growth and economy compared to its peers.
Mohd Sedek similarly said the nation’s macroeconomic fundamentals continue to provide support underlying demand for the currency, with advance estimates showing that the economy expanded by 5.8% year-on-year (y-o-y) in the second quarter of financial year 2026 and exports increased by 36.9% y-o-y in April to May.
He shared a year-end target for the local note against the US dollar of between RM3.95 and RM4.15.
“Against the Singapore dollar, we expect the ringgit to remain relatively stable given the close correlation between both economies’ trade cycles and capital flows.”
Ng, however, argued that a strengthening ringgit against the US dollar may not be automatically linked to a strengthening against the Singapore dollar.
“Although it’s tied to the US dollar, Singapore has remained very resilient. It has been a magnet for capital flow, at least in the larger part of 2026, first with Chinese funds, then a wave of Indonesian money due to uncertainty under the Prabowo government, and then capital from the United Arab Emirates as a result of the regional conflict.”
