KUALA LUMPUR: The ringgit is Asia's best vis-a-vis the US dollar, and the only regional currency that has strengthened against the greenback year-to-date (YTD).
Some analysts think the ringgit will remain Asia's outperformer in the second half of 2024.
"YTD, the ringgit is the only Asian currency that has appreciated against the US diollar," Standard Chartered (StanChart) said.
The local note edged up 2.8 per cent month-on-month (MoM) to 4.591 against the US dollar in July to erase all its losses during the first half of 2024 and gain slightly against the dollar YTD at 0.1 per cent.
"The ringgit started the second half of 2024 on the right foot against the dollar," MIDF Research said.
Reviewing the ringgit performance in July, the firm said the local currency's broad strengthening throughout the month aligns with the gradual weakening of the US dollar on the back of heightened expectations for the US Federal Reserve (Fed) rate cuts.
"The ringgit's performance against the greenback significantly outperformed most other regional currencies, supported by robust economic fundamentals and renewed foreign interest in the domestic equity market," MIDF Research said.
On a broader perspective, the MIDF Trade-Weighted Ringgit Index (TWRI) rose by 1.8 per cent MoM to 87.76 in July, gaining against all currencies within the index but the Japanese yen and Thai baht.
YTD, the index jumped 2.8 per cent as the ringgit rebounded against the US dollar.
As of end-July, the rise in MIDF TWRI was mainly underpinned by the ringgit's gains against the Taiwan dollar (up 6.8 per cent YTD), the Japanese yen (up 6.1 per cent) and the South Korean won (up 6.3 per cent).
MIDF Research said as the ringgit strengthened further beyond the 4.60 mark, it expects the currency to appreciate further in the second half and end the year at 4.43 (end-2023: 4.59).
The return of foreign funds into emerging markets, particularly in light of the anticipated reduction of the Fed's FFR and the narrowing interest differentials, is expected to support regional currencies including the ringgit, it added.
"However, due to the prolonged strength of the US dollar we estimate ringgit will be averaging higher this year at 4.64 (2023 average: 4.56)," it said.
StanChart expects the ringgit to trade against the greenback at 4.66 and 4.55 by the end of 2024 and 2025 respectively.
At the opening today, the ringgit marginally increased 30 basis points to 4.5645/5725 against the greenback from Thursday's close of 4.5675/5710, continuing its 10-day rally as investors anticipated possible Fed rate cuts in September.
StanChart said the authorities' engagement with relevant bodies to encourage repatriation, convert and hedge their foreign currency proceeds has been the trigger for the ringgit outperformance.
"But we note that underlying fundamentals have also been ringgit-positive," it added.
This includes low foreign positioning in Malaysia, high resident offshore positioning, monetary policy divergence (where Malaysia may be the only regional bank more likely to hike than cut) and a continued tourism recovery.
"That said, we note that the ringgit has recovered significantly in a short period and potential reserve rebuilding may moderate further rallies on a relative basis.
"The US election outcome may also bring some risk to the currency, particularly on any harsh tariff actions on China," StanChart said.