Barclays projects that the Malaysian ringgit should benefit from an easing in U.S. dollar strength as markets move into the summer period, and it highlights an incremental role for a slowly appreciating Chinese yuan in underpinning the ringgit over the medium term.
The investment bank noted that cyclical currencies across the Association of Southeast Asian Nations, including the ringgit, are likely to participate in this anticipated dollar softness. At the same time, Barclays cautioned that a finalized U.S.-Iran agreement - and the resulting downward pressure on oil prices - could unwind some of the ringgit's favourable terms-of-trade gains and potentially trigger near-term adjustments in market positioning.
Since May, foreign investors have sold USD 2.4 billion of Malaysian bonds and equities, a flow Barclays interprets as probably reflecting corrections in local stock and bond valuations despite relatively steady foreign exchange in May. The ringgit is quoted on Bursa Malaysia under the code MYR.
Barclays also flagged the possibility that U.S. interest rates may remain higher for longer, a scenario with important consequences for rate-sensitive Asian currencies. The firm’s economists evaluate the chances of an early general election in Malaysia as relatively low, and they do not expect recent political noise to derail the currency narrative.
Looking further ahead, Barclays said a gradually firmer U.S. dollar could constrain Bank Negara Malaysia’s efforts to rebuild foreign exchange reserves. Concurrently, a likely rise in hedging activity could see Asian low-yielding currencies underperform as market participants respond to interest rate and FX volatility.
Context and implications
- The near-term outlook for the ringgit is tied to dollar dynamics and commodity developments, notably oil prices.
- Investor flows into Malaysian bonds and equities have been negative since May, reflecting valuation adjustments despite stable FX in that month.
- Macro factors such as U.S. rate persistence and increased hedging demand could limit currency gains and affect reserve rebuilding.