KUALA LUMPUR: The ringgit could trade stronger in the coming weeks after surging to its highest level since March 2022 and becoming the world's top-performing currency last week.
Analysts at Kenanga Research expect the ringgit vis-a-vis the US dollar to trade in the 4.15-4.20 range over the coming weeks.
This will be supported by Malaysia's favourable yield differential, especially compared to developed economies.
Domestic factors, including robust trade growth, government initiatives to boost foreign direct investments and expectations that Bank Negara Malaysia will keep its key interest rate at 3.00 per cent for at least the next 12 months during the global rate-cutting cycle, have supported the ringgit strong uptrend.
Last Friday, the local currency closed at 4.2005/2070 against the greenback. This followed the US Federal Reserve's oversized 50 basis points (bps) rate cut on Sept 18, surpassing the expected 25bps.
Within six months, the ringgit rose 12.67 per cent against the US dollar.
On a Friday-to-Friday basis, the ringgit surged to 4.2005/2070 against the US dollar from 4.2975/3050 a week ago.
The ringgit also traded higher against other major currencies.
It rose against the euro, closing at 4.6878/6950 from 4.7664/7747 last week, gained against the British pound to 5.5841/5928 versus 5.6439/6538, and strengthened vis-a-vis the Japanese yen to 2.9182/9229 from 3.0570/0625 a week earlier.
"After the Fed's larger-than-expected rate cut, we have revised our end-2024 US dollar-ringgit forecast back to our initial target of 4.25," Kenanga Research said.
The firm added that the ringgit uptrend may ease toward its target as the Fed may not cut rate as much as the market currently expects.
"Next week, the focus will shift to the US manufacturing PMI, durable goods orders and core PCE data to assess the US economic health. We expect mixed result, which should help the ringgit hold around the 4.20 level," it said, adding that the Fed chair Jerome Powell's speech will also be closely watched for further policy clues.
Meanwhile, SPI Asset Management managing director Stephen Innes, quoted by Bernama, said the ringgit will likely move on a continued bullish bias this week, trading at 4.1875 to 4.2025 against the US dollar.
Innes said the massive moves on the ringgit in the past week reminded markets just how deeply undervalued the local unit was, held back by higher US' short-term rates.
"It is as if the jumbo Fed cut opened the bullish floodgates, sending the ringgit surging. But, of course, there's always more beneath the surface.
"The Fed's jumbo rate cut is a game-changer, boosting local foreign exchange (FX) markets and lighting a fire under the local stock market, drawing in foreign inflows in a virtuous cycle for a stronger ringgit," Innes said.
He added that while the US economic data has held up for now, its economy would eventually soften, leading to an even more aggressive repricing of the US yield curve lower, which would benefit the ringgit even further.
"In this environment, any US dollar strength will likely be short-lived, quickly snuffed out by the prospect of more Fed cuts.
"But given how far and fast we have come, I wouldn't be surprised to see some consolidation next week, around 4.20. I am expecting a range of 4.1875 to 4.2025, with a continued bullish bias," said Innes.