Overview of the Malaysian Ringgit's Current Status

The Malaysian ringgit, which was hailed as Asia's standout currency in 2024, now appears to be on the brink of a downturn. Traders are increasingly wary of a looming interest rate cut as trade tensions escalate, particularly influenced by U.S. tariffs under former President Donald Trump.

Analysts' Predictions

Analysts from Credit Agricole and Malayan Banking predict that the ringgit could depreciate to approximately 4.6 per U.S. dollar by the end of June 2025. On March 17, the currency experienced a slight uptick, strengthening 0.3% to 4.435 per dollar, recovering from losses in the previous week. So far in 2025, the ringgit has appreciated 0.6% against the U.S. dollar.

The Impact of Trade Tensions

The Singapore dollar was trading at 3.3355 ringgit on the same day, reflecting a 1.5% increase against the ringgit this year. According to David Forrester, a senior strategist at Credit Agricole based in Singapore, "Slowing global trade, coupled with decreased growth in both China and Malaysia due to Trump tariffs, may compel Bank Negara Malaysia to implement rate cuts later in 2025."

Market Expectations for Rate Cuts

Market expectations are building around a 25 basis point cut in Bank Negara's policy rate within the next year, a significant rise from the two-thirds probability estimated at the beginning of March, as indicated by Bloomberg's swap data. Given that Malaysia's biggest trading partner is China, heightened U.S. tariffs could adversely affect Malaysia's economy, which has thus far demonstrated resilience in navigating global challenges.

The Ringgit's Correlation with the Chinese Yuan

The ringgit's performance is closely tied to the Chinese yuan, and any fluctuations in the yuan could further pressure the ringgit, especially as historical data from the past decade shows a tendency for the ringgit to weaken during the second quarter.

Threats to the Export Sector

Moreover, Trump’s proposed tariffs on semiconductor imports threaten Malaysia’s export sector, particularly as the U.S. accounts for a significant portion of semiconductor exports from the country.

Potential for Recovery

However, there are glimmers of hope for the ringgit as market players speculate on the possibility of rate cuts from the Federal Reserve due to fears of a U.S. recession. Some analysts, like Saktiandi Supaat, the head of FX research at Maybank, suggest that diminishing U.S. exceptionalism could draw the ringgit closer to 4.35 per dollar by the year's end.

Bank Negara Malaysia's Stance

Despite leaving the policy rate unchanged in its March meeting, with no immediate action due to the economy's resilience, Bank Negara Malaysia acknowledges that external factors will be the key drivers for the ringgit. The bank emphasized that favorable economic conditions and ongoing structural reforms could still lend support to the currency.

Concerns About Economic Slowdown

Yet, Barclays Bank strategist Audrey Ong notes that a slowdown in GDP growth raises concerns about the Malaysian economy's strength, making it unlikely that policymakers will ignore the potential impact of U.S. tariffs.

Conclusion and Outlook

As the situation evolves, traders and investors alike will be keeping a close eye on both local and global economic indicators to navigate the uncertainties surrounding the Malaysian ringgit. Will it recover, or is further decline inevitable? Only time will tell. Stay tuned!