Ringgit Strengthens — Is It Really Just Because the US Dollar Is Weaker?

(Kuala Lumpur, Feb 15) As the ringgit has strengthened notably against the U.S. dollar in recent months, analysts say the currency’s performance is shaped by a wide mix of factors, not just external forces.

While some argue the rally is largely driven by a weaker dollar and expectations of Federal Reserve rate cuts—rather than improvements in Malaysia’s fundamentals—Maybank’s research leaders disagree.

Speaking at an online media briefing on Malaysia’s 2026 market outlook, Maybank’s Head of FX Research, Andy, and Maybank Investment Bank’s Chief Economist, Suhaimi, said the ringgit’s trajectory reflects both external risks and meaningful domestic support.

U.S. outlook remains the biggest uncertainty

Andy said the durability of the ringgit’s gains depends on how external risks evolve and whether Malaysia’s structural improvements can be sustained. The biggest uncertainty, he noted, is the U.S. economy: if U.S. growth or manufacturing data rebound strongly, markets could reprice the timing of Fed cuts—or even revive concerns about renewed hikes—potentially strengthening the dollar and putting direct downward pressure on the ringgit.

He also flagged AI-bubble risk as a key factor. Malaysia’s deep role in the global AI supply chain and related investments has supported the ringgit, but if global sentiment turns and capital flows back to the dollar on bubble fears, emerging-market currencies—including the ringgit—could face a pullback. On policy, he expects regional central banks to remain cautious unless an AI shock meaningfully hits financial stability and growth.

Domestic fundamentals provide tangible support

Suhaimi argued the ringgit’s strength should not be reduced to external drivers alone, as domestic fundamentals are providing real support. One key factor is continued foreign inflows into Malaysia’s bond market.

He added that fiscal reform progress has helped narrow the fiscal deficit, and last year’s deficit may have come in below the government’s target of 3.8% of GDP, similar to 2024 when the deficit outcome was pushed below the initial target.

Looking ahead, Suhaimi expects growth to remain anchored by domestic demand, while the net contribution from external demand may stay negative as imports are projected to grow faster than exports. Stronger imports—especially capital goods—signal that the investment upcycle is still underway, reinforcing the resilience of domestic demand.