KUALA LUMPUR: The ringgit is poised to extend its rally after being the best-performing currency in Asia, rising by 11.28 per cent against the US dollar since the start of the year.
This was followed by Thai Baht of 4.54 per cent and SGD of 2.84 per cent.
Economists believe that the outlook of the ringgit will remain bullish given the news that the Federal Reserve (Fed) is likely to cut the interest rates by another 75 to 100 basis points by the end of the year based on the interest rate futures market.
"Hence, there is a high chance that the ringgit would continue to appreciate against the greenback. It is moving towards an immediate support level of RM4.0728.
"If the US dollar/ringgit breaks this level, the next support level is located at RM3.8465," Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told Business Times.
Singapore Institute of International Affairs senior fellow Dr Oh Ei Sun said the appreciation of the ringgit seems sustainable as long as the Fed rate remains low.
"When the Fed rate rises again, the hot money will flock back to the American market, and the ringgit is likely to once again depreciate," he said.
Meanwhile, Oh highlighted that Malaysian importers and fast-moving consumer goods (FMCG) companies are set to gain from the strengthening of the ringgit, which will reduce their costs when purchasing foreign goods priced in US dollars.
He said the recent lowering of the Fed interest rate has allowed an influx of dollar-denominated capital to move into open markets, including emerging economies like Malaysia.
"When there is a surplus of dollars in circulation, the value of the corresponding local currency, in this case, the ringgit, tends to appreciate.
"This is particularly advantageous for importers, as they will be paying much less in dollar terms for goods they bring into the country," he said.
According to MIDF Research, companies like Hup Seng Industries Bhd, Spritzer Bhd, and Leong Hup International Bhd are anticipated to benefit from the stronger ringgit.
This is due to factors such as local sales and lower costs for importing raw materials, packaging, and machinery, which could lead to improved profit margins.
The research house noted that FMCG companies like Nestle Malaysia Bhd are also well-positioned, given that 80 per cent of their sales are domestic despite importing most of their raw materials in US dollars.
"Every five per cent depreciation of the US dollar is estimated to boost Nestle's earnings by one per cent.
"However, the appreciation poses challenges for export-orientated companies like Asia File Corporation Bhd and Rhong Khen International Bhd, which are likely to see lower sales as their US dollar-denominated revenues shrink when converted to ringgit," it said.
Despite this, MIDF said the overall outlook remains balanced, with the stronger ringgit expected to alleviate cost pressures in commodity-dependent sectors while stabilising market conditions.
"We forecast the ringgit to average RM4.15 to US dollar in 2025, providing a buffer against elevated commodity prices, particularly benefiting food and beverage (F&B) and poultry players who source inputs in US dollars, as the stronger currency helps reduce costs," it added.
At 6pm yesterday, the ringgit rallied to 4.1275/1310 against the US dollar, marking its strongest level since June 2021.
The currency appreciated 0.69 per cent from Tuesday's close of 4.1550/1605.