KUALA LUMPUR: The ringgit has rebounded in recent months, driven by unexpectedly robust economic growth, political stability, and the anticipated US interest rate cut, according to economists.
However, they believe that there is still significant potential for the ringgit to appreciate against the US dollar.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid noted that while the anticipation of a US rate cut has been a contributing factor, the ringgit is also considered undervalued.
"The upside potential is visible. With the right economic policies driving stronger growth, this could be a key catalyst for a higher value of the ringgit.
"Maintaining the current momentum in reforms will be crucial for achieving the full potential of the ringgit," he told the Business Times.
Regarding the potential impact of the upcoming US presidential election on the ringgit, Afzanizam said the election could affect the ringgit moving forward.
Intermittently, he said the markets may become cautious and typically seek refuge in safe haven currencies, such as the US dollar.
"However, this may be temporary, as investors will ultimately map the prospect of the ringgit to the growth potential of Malaysia's economy," he said.
The political landscape in the United States remains complex, with former US president Donald Trump's reelection campaign facing challenges.
Incumbent presidential nominee Vice President Kamala Harri has made significant gains in the polls.
While the Democratic Party is expected to maintain tariffs on China, they are likely to be less extensive than those imposed during Trump's tenure.
SPI Asset Management managing director Stephen Innes said this easing of trade tensions has reduced bearish pressures on the ringgit.
Innes said the sustainability of these gains is supported by a convincing drop in US two-year yields, a key metric for FX traders, making it less likely for the ringgit to weaken.
"Local exporters, taking note, have shifted from hoarding US dollars to steadily selling US dollars/ringgit on any upswing. This trend puts us on track to hit our fourth quarter (Q4) US dollar/ringgit target of 4.50.
"However, with weakening US economic data, the Fed might accelerate rate actions post-November elections, potentially driving the US dollar/ringgit closer to the 4.35 level or better.
"In summary, the Ringgit's impressive performance looks sustainable, supported by both local and global economic factors, political stability, and strategic market moves by local exporters," he added.
At the closing today, the ringgit rose to 4.5900 against the greenback from Tuesday's close of 4.6330/6400.