KUALA LUMPUR: The ringgit surged to its highest level since late December 2021, following a rally in the Chinese yuan after the country's central bank announced broad stimulus measures.
The ringgit jumped 0.7 per cent to 4.171 against the US dollar on Tuesday, marking it as the best-performing currency in the region this year.
SPI Asset Management managing director Stephen Innes said the rally in Chinese Yuan paired with the US Federal Reserve's recent jumbo rate cut is boosting equities, commodities and pro-cyclical emerging market currencies like the ringgit.
"It's a bit of a virtuous cycle - Fed cuts strengthen the ringgit, commodities get a boost from China's stimulus efforts, and traders are jumping on the ringgit bandwagon, expecting more inflows.
"While we do not yet know if their efforts will work in the long run, the immediate impact on FX markets is undeniable - a stronger ringgit," he told Business Times.
However, Innes said the suitability of this movement depends on a few things.
On the US side, he said it hinges on whether the ringgit gets that much-hyped soft landing.
"If the economy nosedives, that could quickly turn into a ringgit negative," he said.
As for China, Innes said policymakers are clearly stepping up their game to stave off deflation and revive growth.
"Sticking below 4.20 seems doable, but a move closer to 4.00? That will require both the US and China to get their acts together.
"We are talking about a soft landing stateside and a full-blown housing market revival in China. If that alignment happens, the ringgit could fly," he added.
Recently, China's central bank unveiled broad monetary stimulus and property market support measures to boost the world's second-largest economy.
This has sparked a rally in Chinese stocks and the yuan, which jumped to its highest level since May 2023.
The stimulus offer more funding and interest rate cuts marks the latest attempt by policymakers to restore confidence in the world's second-largest economy after a slew of disappointing data raised concerns of a prolonged structural slowdown.