The Ringgit’s Rise Amidst US Economic Data
The ringgit closed significantly stronger against the US dollar on Monday, a positive trend that was primarily driven by the release of a softer-than-expected US jobs report. This particular piece of economic data caused a profound shift in market sentiment, leading traders to anticipate a more aggressive approach to monetary easing by the Federal Reserve. The new outlook prompted analysts to revise their expectations, with the market now pricing in a jump in anticipated Fed rate cuts this year to 64 basis points, a notable increase from previous forecasts. Furthermore, the probability of a September rate cut has surged to over 90%, creating a powerful tailwind for emerging market currencies like the ringgit. This is because a weaker US dollar, resulting from the prospect of lower interest rates, makes non-dollar denominated assets more attractive to global investors seeking higher returns, thereby boosting capital inflows and currency demand.
Confluence of Factors Driving Currency Demand
According to Stephen Innes, the managing director of SPI Asset Management, the shift in market expectations following the disappointing US jobs report triggered a widespread sell-off of both the US dollar and US government bonds. This significant capital movement out of the US in turn boosted demand for emerging market currencies, including the ringgit, as investors reallocated their portfolios in search of better yields. Complementing this external factor, Bank Muamalat Malaysia Bhd’s chief economist, Dr. Mohd Afzanizam Abdul Rashid, pointed out that the ringgit’s positive trend is also supported by the expected decision of Bank Negara Malaysia to maintain its current overnight policy rate. This strategic move by Malaysia’s central bank is anticipated to cause the interest rate differential between the two countries to narrow, making ringgit-denominated assets more appealing to investors and contributing to the currency’s upward momentum.
A Mixed Performance Across Global Currencies
While the ringgit’s performance was particularly strong against the US dollar, its movement was more varied when measured against other major and regional currencies. The local note experienced a depreciation against some of the world’s leading currencies, including the Japanese yen, the British pound, and the euro. This mixed performance reflects the complex interplay of various global economic factors and the unique dynamics of each currency pair. However, the ringgit did show a promising improvement against several of its regional counterparts, strengthening against both the Singapore dollar and the Indonesian rupiah. Conversely, it weakened slightly against the Thai baht and the Philippine peso. This varied outcome underscores that currency movements are influenced not only by developments in major economies like the US but also by regional trade balances, local economic policies, and a host of other factors that contribute to the multifaceted nature of the global foreign exchange market.
