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Malaysian ringgit forecast: MYR looks for support after plunging to lowest level since Asian financial crisis

By Nicole Willing

Edited by Valerie Medleva

09:02, 29 September 2022

Malaysian 50-ringgit banknotes
How will the Malaysian currency perform amid FX volatility? – Source: Nora Carol Photography / Getty Images

The Malaysian ringgit (MYR) has weakened to a 24-year low against the US dollar (USD), with dollar strength weighing heavily on emerging markets currencies this year. The USD/MYR exchange rate is approaching its highest level since the 1997-1998 Asian financial crisis, having risen for the past four consecutive weeks, as of 28 September.

The ringgit has so far held up against the dollar more firmly than other Asian currencies, shedding 0.7% last week, while the Chinese renminbi (CNY), South Korean won (KRW), Taiwanese dollar (TWD), Thai baht (THB) and Philippine peso (PHP) fell more than 1%.

What drives the value of the Malaysian ringgit, and what is the outlook for the currency in this volatile foreign exchange environment?

In this article, we look at the key drivers for the performance of the ringgit and some of the latest MYR predictions from foreign currency analysts.

What drives the MYR’s value?

The Malaysian ringgit is the official currency of Malaysia, issued by the country’s central bank, the Bank Negara Malaysia. The Malaysian dollar was introduced in 1967, as a replacement for the British Borneo and Malayan dollar at a rate of 1:1. The currency was renamed from the Malaysian dollar to the Malaysian ringgit in 1975. 

In the wake of the Asian financial crisis in 1998, the ringgit was pegged to the US dollar at a rate of 3.80. That ended in 2005. The ringgit has since been a free floating currency.

The value of the ringgit is affected by the growth of the Malaysian economy, including gross domestic product (GDP), trade flows, industrial activity and government policy on exports and spending, as well as the central bank’s monetary policy.

The Malaysian economy is the third largest in southeast Asia and the world’s 33rd largest, according to International Monetary Fund (IMF) data

The economy has transitioned from relying on the export of agricultural and mineral commodities to advancing its industrial and services sectors, which account for around 37% and 51% of GDP, respectively.  

Malaysia remains the world’s second largest exporter of palm oil products after neighbouring Indonesia. Malaysia is also among the top five exporters of rubber products, with its exports reaching an all-time high in 2021.

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Ringgit value declines on strong USD, China risk

The ringgit was relatively stable against the US dollar at around 3.00-3.50 until 2014, when a combination of domestic and international factors weakened the currency to around 4.33.

USD/MYR 5-year chart

The US ended the quantitative easing introduced in response to the 2008 global financial crisis, reducing capital inflows into Malaysia and resulting in fiscal deficits from 2013 until 2015. 

Crude oil prices fell sharply, weighing on the palm oil market. Scandals surrounding the One Malaysia Development Bank (1MDB) added further bearish pressure on the ringgit, which fell by 42% against the dollar in the year from August 2014.

The USD/MYR pair dipped below 4.00 to 3.91 in January 2016, but climbed to 4.46 by December of that year. The exchange rate trended lower in 2017 and dropped back to around 3.90 in the first four months of 2018. 

The USD/MYR then stabilised into a 4.00-4.17 range until the start of the Covid-19 pandemic, which saw the pair rise to 4.39 in March 2020 as investors flocked to the safe haven of the US dollar. 

The dollar retreated and USD/MYR traded lower, moving down to the 4.00 level by the end of the year. Following a brief rise to 4.24 in August 2021, the pair ended the year at 4.17.   

The USD/MYR began to rise at an accelerated pace from March 2022, climbing from 4.18 to 4.26 in late April, after the US Federal Reserve (Fed) began raising interest rates

The rate hikes have put pressure on emerging markets currencies as capital has flowed out of their economies into the US at the same time as soaring commodity prices, particularly for energy, and high inflation have pushed up import costs.

The USD/MYR rate climbed to 4.48 by the end of August and has continued to rally in September, approaching 4.63 on 28 September.

Analysts at Malaysia-based Maybank recently noted:

“MYR weakness was largely driven by exogenous factors, including the earlier rise in UST yields, USD strength, sharp and continued decline in CNH (of which MYR has a strong correlation to), IMF’s downgrade of global growth, risks of China slowdown amid extended lockdowns and ongoing war in Ukraine.”

Is there potential for the USD/MYR exchange rate to reach the previous high of 4.7125 seen in 1998 (when the intraday high reached 4.88)? 

GBP/USD

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Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00006

Let’s look at some ringgit forecasts from forex analysts.

MYR forecast: How will the ringgit perform in 2022 and beyond?

A number of analysts expect the ringgit to continue shedding value against the strong US dollar, but potentially strengthen against other currencies, such as the euro and British pound sterling, on macroeconomic drivers.

USD/MYR forecast

“The pair remains bullish following consecutive breaks of key resistance levels, the latest being 4.60, and is expected to head towards 4.65 next given unperturbed USD strength, which will more likely than not, [be] amplified by upcoming Fed [speeches],” according to Malaysia-based Hong Leong Bank

“USD/MYR will unlikely defy broad market direction even though the overbought position is building up rapidly.” 

The bank’s technical analysis showed there was support for USD/MYR at 4.5520 and 4.5680, with resistance at 4.6200 and 4.6500.

Hong Leong’s analysts were neutral-to-bearish in their one-month MYR forecast, stating: “We are turning bearish on MYR given prospects of sustained USD strength. Slower than expected moderation in US CPI, coupled with resiliency seen in recent data releases, are expected to support the Fed’s case for continued aggressive policy normalisation going forward… That said, the MYR will remain supported by a favourable domestic growth outlook amid continuous robust domestic consumption and a low base effect last year.”

Analysts at French bank Societe Generale saw the USD/MYR pair trending higher towards 4.73-4.77 now that it has broken through the 4.43-4.45 resistance level: “Breakout above the key levels points towards persistent uptrend. Beyond 4.59, the pair is expected to inch higher towards next projections at 4.73/4.77 and perhaps even towards 4.95,” said the bank.

Maybank’s analysts expected “MYR to remain under pressure amid global growth concerns, tighter financial conditions, CNY weakness and with BNM still catching up on the rate hike cycle. Nonetheless, chatters [sic] of the potential peak in Fed hawkishness, easing UST yields and USD moderation are some factors that could see the intermittent bounces in MYR.

“Our expectations that USD support will pick up again in the run up to Aug and next FOMC on 22 Sep has panned out. More recently softer oil prices and expectations of upcoming domestic elections coming closer are expected to add further pressure on the MYR.”

At the end of August, the bank revised up its USD/MYR forecast from 4.40 to 4.50 for the end of the third and fourth quarters, from 4.35 to 4.40 for the first quarter of 2023 and from 4.30 to 4.40 for the second quarter “to reflect some of the uncertainties building up over the next 3-6 months”.

The pair has broken through the resistance Maybank saw in its weekly report on 23 September, at 4.5740 and 4.60, with the next level at 4.6390. 

Malaysia’s external trade outlook is caught between the push and pull of commodity price support and technology exports against the downward pressure of a bearish global economic outlook amid the Russia-Ukraine conflict, US monetary policy and concerns around economic growth in China, Malaysia’s largest trading partner.

Domestically, political volatility is raising the possibility of early elections before the end of the year. “Elections and associated near-term uncertainties could induce higher vols for the USD/MYR pair, but a sustained period of volatility and extended MYR losses is not our base case,” Maybank analysts wrote, noting that while the USD/MYR pair climbed more than 8% around the time of the last elections in May 2018, most of the upswing was related to dollar strength and falling oil prices.

In its monthly Malaysian ringgit forecast, Singapore-based UOB Group revised up its USD/MYR targets “as USD/CNY inevitably march towards the psychological 7.00 level, the negative spillover effect to other Asia FX is likely to intensify. As such, we update our point forecasts to factor in further weakness in most Asia FX against the USD. We lift our USD/MYR forecasts to 4.55 in 3Q22, 4.58 in 4Q22, 4.60 in 1Q23 and 4.60 in 2Q23. They were previously at 4.49, 4.52, 4.53 and 4.54 respectively.”

The MYR forecast for 2025 from algorithm-based forecaster AI Pickup projected that the USD/MYR pair could average 4.66, up from 4.54 in 2022 and 4.45 in 2023. The service’s MYR forecast for 2030 estimated that the pair could average 4.50, down from the suggested peak of 4.81 in 2028.

EUR/MYR forecast

The ringgit has strengthened against the euro year to date as the eurozone deals with the energy crisis and the wider fallout of the Russia-Ukraine conflict. 

Maybank’s analysts last week saw a potential double bottom in play, with support at 4.4380 and resistance at the 50-day moving average (DMA) of 4.5260 and the 100 DMA of 4.5710, but the pair dropped through support to 4.42 on 26 September. 

Their longer-term MYR forecast for 2022 and beyond indicated the EUR/MYR pair could rebound from 4.41 at the end of the third quarter to 4.46 at the end of the year, retreat to 4.40 in the first quarter of 2023 before climbing to 4.49 at the end of the second quarter.   

However, the EUR/MYR forecast from Trading Economics predicted that the pair could decline from 4.39541 at the end of this quarter to 4.28481 in one year, based on global macro model projections and analysts’ expectations.

GBP/MYR forecast

Analysts see the potential for a short-term upside in the ringgit’s value against the British pound.

The GBP/MYR has fallen below the Covid low of 5.0370, with GBP slumping to an all-time low against the US dollar on concerns about the UK economy. “Bullish momentum on the daily chart has largely moderated, while RSI is dipping lower,” according to Maybank’s technical analysis. 

Analysts at Hong Leong Bank were neutral to slightly bullish on the ringgit against the pound for the near term “as the sterling appears to be consolidating from recent sharp losses although it remains bearish overall. The stern bearishness in the sterling heading towards parity with the greenback suggests potential downside for GBP/ MYR, with 4.80 levels as the next target over the more medium term.” The bank’s technical analysis showed support at 4.80 down to 4.7630, with resistance up at 5.0000 to 5.1100.

If you are looking for a MYR forecast to trade on, it’s important to remember that currency markets are highly volatile, making it difficult for analysts and algorithm-based forecasters to come up with accurate long-term predictions. We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns.

FAQs

Is MYR a good investment?

In volatile forex markets, it is important to do your own research to determine whether a currency is a good fit for your investment portfolio. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.

Will MYR go up or down?

The direction of the MYR against other currencies could depend on external trade and economic factors, such as the Russia-Ukraine conflict, commodity prices and the health of the Chinese economy, as well as domestic factors.

Should I invest in MYR?

Whether you invest in the Malaysian ringgit for your portfolio is a personal decision depending on your risk tolerance and investing strategy. You should do your own research to take an informed view of the market. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.

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