Ringgit owes its surge to forces well beyond US dollar’s weakness

[SINGAPORE] The Malaysian ringgit’s relentless rally is being driven by a range of structural factors beyond the US dollar’s broad weakness, suggesting its gains will likely be sustained.

Only about a quarter of the ringgit’s 12 per cent surge over the past year, the biggest in Asia, is attributable to macro catalysts such as global risk sentiment and moves in the greenback, according to a Bloomberg analysis.

Strengthening economic fundamentals, such as rising investment flows and growth that’s exceeded expectations, are proving to be more durable tailwinds for the currency, which has climbed to its strongest level since 2018.

The outsized gains “in the ringgit are likely on account of foreign direct investment, especially into data centres which has paid off nicely, the growth momentum and resumption of fiscal consolidation”, according to Wee Khoon Chong, director of Apac macro strategy at BNY. The ringgit can “absolutely” sustain its outperformance in emerging Asia in the first half, he said.

The analysis used a factor-attribution framework that regresses the ringgit against the Bloomberg Dollar Spot Index, two-year Treasury yields and the MSCI World Index of equities. The latter two factors combined exerted far less influence on the Malaysian currency than on Thailand’s baht, the Singapore dollar and the Philippine peso, it shows.

Investor confidence in Malaysian assets has been rising as the trade-reliant local economy shows resilience in the face of 19 per cent US tariffs that came into effect last year. Gross domestic product grew 5.7 per cent in the October to December period, helping full-year growth beat official estimates.

Malaysia also plays a key part in the artificial intelligence supply chain and its emergence as a hub for data centre build-outs in Asia promises to create new growth opportunities for the economy.

Foreign investments across the services, manufacturing and primary sectors jumped by more than 47 per cent year on year in the first nine months of 2025, according to a November press release from the Malaysian Investment Development Authority.

BNY’s Wee said that optimism over the Johor-Singapore Special Economic Zone (SEZ) may be another factor aiding sentiment.

SEE ALSO

Malaysia, Mexico most at risk from Japan carry unwind, HSBC says

Malaysia’s trade hits record RM3.1 trillion in 2025, with exports beating forecast

Malaysia’s economy grows 5.7% on year in Q4 2025, official advance estimates show

Malaysia this month unveiled a slew of tax incentives to lure investors to the SEZ that seeks to add US$26 billion per year to the Malaysian economy by 2030. It plans to release the blueprint for the zone in the first quarter.

There are risks though. Malaysia is staring at a relatively more challenging period, with economic expansion projected to slow to 4 to 4.5 per cent in 2026 from 4.9 per cent last year.

Further, HSBC Holdings has said that the nation’s bond market is among those most at risk should an increase in Japanese yields, beyond the one that rattled global markets last week, prompt Japanese investors to repatriate capital.

Strategists at Goldman Sachs remain optimistic when it comes to the currency outlook.

“Tech exports, foreign direct investment and stable Bank Negara Malaysia should underpin ringgit strength in 2026,” a team including Danny Suwanapruti wrote in a note last week. The US bank in a separate Jan 23 report forecast the ringgit to rise to 3.85 per US dollar over 12 months.

The currency has already climbed more than 3 per cent in January and capped a sixth straight day of gains on Wednesday to finish at 3.92 per US dollar.

A return of global funds to Malaysian stocks also augurs well for the ringgit. Overseas investors have poured nearly US$308 million into the market on a net basis so far in January. That’s after an outflow of more than US$5 billion in 2025. BLOOMBERG