PETALING JAYA: The ringgit’s recent slide against the benchmark US dollar is no cause for concern and is largely seen as a short-term blip due to external pressures.
However, short-term volatility is expected for the local note, economists said.
Sunway University professor of economics Yeah Kim Leng said rather than a reversal of its longer-term fortunes, the ringgit’s recent slide is seen primarily as a short-term blip driven by external factors, particularly a stronger US dollar amid expectations of prolonged high US interest rates and geopolitical risk aversion.
“The ringgit’s underlying fundamentals remain resilient, with robust gross domestic product growth, contained inflation, a strong external position as a net energy exporter, and a credible monetary policy framework, all of which suggest the currency’s weakness is not aligned with its intrinsic value,” Yeah told StarBiz.
In 2025, the ringgit was Asia’s best-performing currency, gaining up to 10% against the US dollar to trade around the 4.05 to 4.07 mark by the end of the year.
This was a huge rebound from its lows of around 4.80 just a year earlier.
While momentum continued into 2026, it reached a multi-month low of 4.14 in June, due mostly to global market conditions and sentiment. It has since stabilised back to the 4.07 level, but not without more volatility expected in the near term.
Socio-Economic Research Centre executive director Lee Heng Guie said while economic fundamentals, including strong exports, still underpinned the ringgit, persistent high US interest rates (which cause wide US dollar-ringgit yield differentials), capital flow volatility, shifting geopolitical tensions, and the fluctuating Chinese yuan could also introduce short-term volatility to the ringgit against the greenback.
Lee has a 4.05 to 4.10 year-end target for the ringgit against the US dollar.
Center for Market Education economist and chief executive officer Carmelo Ferlito also reckoned the ringgit’s recent weakness could mainly be seen as a market movement rather than as a reflection of a deterioration in Malaysia’s economy.
“At this stage, I would regard it more as a correction than as evidence of a fundamental change in direction,” he said, adding that the ringgit moved very strongly earlier this year amid Malaysia’s underlying economy not changing much.
“The same observation applies to the recent depreciation, exchange rates can move substantially while the underlying economic structure changes very little.”
He noted markets were seeing renewed strength in the US dollar, higher US yields and changes in investor positioning across Asian currencies, and the ringgit has been caught in that broader movement.
“More generally, I believe exchange rates are heavily influenced by expectations, capital flows and speculative positioning, often much more than by changes in economic fundamentals,” Ferlito said.
He said he was “sceptical” about the idea that there was a clearly identifiable “fundamental” value for the ringgit.
“Fundamentals certainly matter over the long run, but they cannot explain the magnitude and speed of many short-term currency movements,” he added.
He also said the repeated sharp appreciation and depreciation of the ringgit over recent years, often without comparable changes in Malaysia’s economic fundamentals, suggest that expectations, speculation and international portfolio movements played a much larger role than is sometimes acknowledged.
Yeah said while near-term headwinds from global risk sentiment and dollar strength may persist, the ringgit is expected to find support from domestic strengths, including resilient household demand, fiscal consolidation, and healthy demand for Malaysian government bonds.
“On balance, the current exchange rate likely underestimates the ringgit’s real value, pointing to a potential recovery once external pressures ease,” Yeah added.
In a report issued last Friday, Kenanga Research said its 3.95 year-end US dollar-ringgit forecast now “looks difficult”, although the direction of travel remains toward the ringgit’s strength.
The research house said investors would likely stay defensive until the Federal Reserve’s (Fed) hike pricing fades or Gulf talks resume. “We expect the ringgit to hold around 4.08 next week, with 4.10 as the topside risk,” it told clients.
On Sept 16, the Fed lifted its benchmark interest rate by 25 basis points to a target range of 3.75% to 4% – its first hike since 2023.
In its report issued on Monday, MBSB Research noted that the ringgit had weakened to nearly RM4.10 following the dollar strength after the Fed’s rate hike and hawkish signal, although the local currency did reverse some of the depreciation after local economic updates showed that Malaysia’s inflation inched higher to 1.9% year-on-year in July, and external trade performed stronger than expected in the month of August.
MBSB Research said on a broader basis, the ringgit appreciated against the currencies of Malaysia’s trading partners.
Citing its MBSB Trade-Weighted Ringgit Index, it said the index increased by 0.4% week-on-week, to 98.09, appreciating mainly against the South Korean won (3.1%), Japanese yen (2.2%), and the euro (0.9%).
ING Bank strategists said in an article on Monday that the greenback remained on solid footing.
“We recently updated our Fed call and now expect one final hike this year.
“December remains more likely than October, partly because of its proximity to the mid-terms (elections), although stronger data and further gains in energy prices could encourage markets to add to the 13 basis points currently priced for next month,” they said.
“If markets assign at least a two-thirds probability to a hike by decision day, the Fed may feel compelled to act, even without full conviction, to avoid unwanted volatility at the back end of the curve.”
