Malaysian exporters are likely increasing conversions of their foreign-currency earnings into the ringgit, which stands to boost the local exchange rate through the rest of the year, analysts say.
Malaysia’s foreign-currency deposits fell 8.6% to RM308bil in August, the sharpest monthly decline since 2010, according to most recent central bank data. The drop indicates that exporters, benefiting from semiconductor shipments, may be converting those earnings into ringgit.
While September trade figures are scheduled for release next week, BNP Paribas SA expects ongoing corporate conversions to support the ringgit. That momentum, combined with robust economic fundamentals and foreign direct investment inflows, should help lift the currency to 3.90 per dollar by June 2027 from around 4.08 currently, according to the bank.
"We expect corporate conversion flows to rise from onshore exporters seeking to reduce the rising FX exposure and from foreign direct investment inflows such as for the construction of data centers,” said Parisha Saimbi, EM Asia FX and rates strategist at the bank.
Foreign investments have poured into Malaysia, which has become a major Asian hub for semiconductor manufacturing and data centers. Malaysia’s exports rose 45% in August from a year earlier, matching the growth seen in June, which was the fastest since August 2022.
That has offered support for the ringgit, which rallied 1.5% against the dollar in August. Despite giving back some gains the following month amid a broader dollar rebound, it remains Southeast Asia’s best-performing currency this year behind the Singapore dollar.
Official efforts are reinforcing those market flows. Bank Negara Malaysia reiterated last month that it continues to encourage state-linked and private firms to repatriate and convert foreign-currency income. The strategy mirrors a similar move in South Korea, where officials urged exporters to repatriate overseas funds before the won began to recover.
With no official data on Malaysian exporter conversion of foreign currency proceeds into the ringgit, the size of business foreign-currency deposits held by commercial banks give an indication of such trends, according to Khoon Goh, head of Asia research at Australia & New Zealand Banking Group.
"Since July there has been a fall in business foreign-currency deposits, which may point to increased conversion,” said Goh. "If there is a more noticeable rise in conversions, that should support the ringgit, though portfolio flows is also another important driver.” - Bloomberg
