PETALING JAYA: The ringgit is expected to remain under pressure in the near term as persistent US inflationary pressures and escalating geopolitical tensions support the US dollar, while markets assess the Federal Reserve’s (Fed) interest rate outlook ahead of its October policy meeting.
The US dollar has come under some pressure ahead of the Federal Open Market Committee (FOMC) meeting on Oct 27 to 28, although the weakness could prove temporary, as investors weigh the Fed’s next policy move against persistent inflationary pressures and signs of volatility in equity markets.
While markets broadly expect the Fed to hold rates at the October meeting, expectations of a possible rate hike in December have kept its policy outlook in focus.
Meanwhile, Yemen’s Iran-aligned Houthi rebels have stepped up attacks on Saudi energy infrastructure, heightening concerns over potential supply disruptions, pushing Brent crude futures above US$110 a barrel and adding to inflation risks.
Higher oil prices could bolster demand for the US dollar as a safe-haven asset, while also complicating the Fed’s efforts to contain inflation.
At the same time, volatility in technology and artificial intelligence (AI)-related stocks could undermine the dollar’s traditional safe-haven appeal.
Investors may be less inclined to flock to the greenback if the sell-off stems from a crash in US technology and AI stocks, given expectations that the Fed would scale back its tightening plans to cushion the economic fallout, even with inflation remaining elevated.
iFAST Capital research analyst Kevin Khaw Khai Sheng is of the view that the ringgit is likely to remain under pressure over the next month amid external uncertainties, particularly persisting geopolitical tensions, the outcome of the upcoming FOMC meeting and US inflation data.
“We expect the Fed to keep interest rates unchanged at its next meeting, although its tone may be more hawkish, which could continue to pose a threat to the ringgit.
“Nevertheless, there are also technical factors affecting the ringgit, alongside concerns related to domestic politics.”
Khaw said the ringgit could trade between RM4.05 and RM4.10 against the US dollar by year end, adding that its weakness is unlikely to persist.
Markets are also looking to the release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, for clues on the future path of interest rates.
Core PCE is the Fed’s favourite because it is the benchmark the Fed uses for its 2% inflation target. It strips out volatile food and energy prices and gives a broader, more current picture of what US households are actually consuming.
According to a Reuters poll, nearly all economists surveyed expect the Fed to leave interest rates unchanged at its October meeting, with the Fed funds rate window at 3.75% to 4%, before raising rates in December.
Market expectations also point to a low probability of an October hike, at just 16%, compared with a 90% chance of a December hike, according to CME’s FedWatch Tool.
Khaw believes markets may be overestimating the likelihood of another rate hike in December, as the current inflationary pressure is largely driven by supply-side factors, particularly higher oil prices, rather than strong demand.
The broad US Dollar Index (DXY) has remained above the 100-point level – a key psychological benchmark – in October thus far but has been declining.
Readings below the 100-point level on the DXY signals broad-based weakness in the US dollar against major currencies.
The index stood at 101.799 at press time and is up more than 3.61% year-to-date.
Against regional currencies, the ringgit appreciated by 0.42% against the Japanese yen on a year-to-date basis, and 1.25% versus the Singapore dollar.
However, it depreciated 7.07% versus the Indonesian rupiah, 6.75% against the Philippine peso, 6.08% against the Thai baht and 3.87% against the euro.
The ringgit is the fifth best performing currency against the US dollar year-to-date, up by 0.84, behind the South Korean won, onshore and offshore Chinese yuan along with the Singapore dollar.
Meanwhile, Berjaya Research head of research Kenneth Leong expects the ringgit to trade at a range-bound pattern between 4.07 and 4.10 against the greenback ahead of next week’s FOMC meeting.
Leong opined that at the current juncture, the ringgit’s potential upside may be capped by persistent US inflationary pressures and elevated geopolitical risks which reinforce the expectations of stickier inflation, which could eventually point to another rate hike by the Fed in December as well as sustained foreign fund outflows.
“Moving forward, the ringgit’s direction will hinge on the Fed’s policy guidance, US Treasury yields movement, global risk sentiment and local economic fundamentals, with the country slated to release the final reading of the third quarter of financial year 2026 (3Q26) gross domestic product (GDP) data next month,” he said.
Leong said there are several factors that could alter the Fed’s policy outlook beyond what the market is pricing in now, with the first being inflation trajectory.
Stickier-than-expected core inflation, particularly if tariff-induced costs and higher energy prices feed through to broader prices, would strengthen the case for further hikes, lending further support to the US dollar.
“Another factor is the pace of economic growth and consumer demand where stronger-than-expected consumption and investment could sustain inflationary pressures, while a sharper slowdown would favour a more measured approach.
“Energy price movements and geopolitical developments are also important, as a prolonged period of elevated oil prices could reinforce the case for tighter monetary policy,” he said.
In relation to the surge in energy prices, Leong said the ringgit’s direction hinges on the duration of supply disruptions, global risk sentiment and the US dollar’s response.
For the US dollar, the surge in Brent crude is deemed supportive given its safe-haven status, but for the ringgit, the impact is “relatively mixed”.
“As a net energy exporter country, Malaysia could benefit from higher export receipts. However, the said positives could be negated by elevated fuel subsidies and imported crude-related products costs.”
US technology and AI-related stocks suffered a sharp sell-off last week, with the S&P 500 and Nasdaq Composite recording their biggest weekly declines since late June amid concerns over the cost of AI infrastructure investments and the impact of higher interest rates.
However, the two indexes rebounded on Monday as AI-linked shares recovered, with gains extending on Wednesday as strong corporate earnings lifted sentiment.
The sharp swings in technology stocks highlight the continued uncertainty surrounding AI-related investments.
That said, while a potential sharp selloff in US technology stocks could weigh on the US dollar, if investors expect the Fed to ease its policy stance to cushion the economic fallout, the effect is not automatic.
To this end, Leong said safe-haven demand for the US dollar amid geopolitical tensions is likely to exert greater near-term influence on the ringgit than AI-related stock market volatility, particularly if prolonged oil supply disruptions keep inflation elevated and lead to further fiscal tightening by the Fed.
He noted that in terms of key developments, attention will also turn to the US mid-term elections in November, where potential policy shifts on trade, fiscal spending and tariffs could influence dollar sentiment and global capital flows.
“Domestically, Malaysia’s economic growth outlook (3Q26 GDP data slated to be announced soon), Bank Negara Malaysia’s policy stance (final Monetary Policy Committee meeting in 2026 on Nov 5) and foreign fund flows will shape the ringgit’s resilience,” Leong said.
