KUALA LUMPUR: The ringgit reached new multi-year highs against the US dollar (USD) today, breaking the 4.12 level as at 12pm.
This improvement stems from a combination of external and internal factors.
Stronger Malaysian Economy
Malaysia's better-than-expected economic performance has boosted investor confidence.
Second quarter gross domestic product grew 5.9 per cent beating estimates, amid robust spending and trade.
Bank Negara Malaysia Governor Datuk Seri Abdul Rasheed Ghaffour highlighted that the ringgit's rise is partly driven by Malaysia's robust economic outlook and structural reforms.
Strong domestic data has reassured markets of Malaysia's recovery potential.
A strengthening yuan
China has been Malaysia's largest trading partner since 2009 and fluctuations in the yuan can directly impact the Malaysian economy.
China's yuan hit its strongest level in over 16 months on Wednesday after it unveiled stimulus measures to shore up the slowing economy on Tuesday.
The Chinese offshore yuan strengthened briefly to 6.9946 per dollar, the strongest since May 2023.
US Federal Reserve rate cuts
A major factor behind the ringgit's recent strength is the US Federal Reserve's decision to cut interest rates by 50 basis points, the first reduction in four years.
This has weakened the US dollar, leading investors to seek better returns elsewhere, including Malaysia.
Stephen Innes of SPI Asset Management recently said that the Fed's rate cut has unlocked value in the ringgit, previously held back by high US interest rates.
Foreign inflows and market confidence
The Fed's actions have also spurred foreign investments into Malaysia's stock market, boosting the ringgit further.
As foreign capital flows into the country, it creates a virtuous cycle, strengthening the ringgit and attracting even more investment.
Performance against other currencies
The ringgit has also appreciated against other major currencies, such as the euro, British pound, and Japanese yen, while gaining against regional currencies like the Singapore dollar, Indonesian rupiah, and Thai baht.
This broad-based improvement reflects overall market optimism about the ringgit.
Looking ahead, the ringgit is expected to maintain its strength. Continued US economic softness could lead to more Fed rate cuts, further boosting the ringgit.
The ringgit's rise is driven by strong local economic conditions, the Fed's rate cuts, and increased foreign investment, with prospects for further gains in the near term.