Asia’s top performing currency last year is set for a bout of weakness as traders brace for a higher risk of an interest rate-cut amid trade tensions.
After being largely range-bound this year, the Malaysian ringgit may fall to 4.6 per dollar by end-June.
Slowing global trade as well as Chinese and Malaysian growth due to Trump tariffs could force Bank Negara Malaysia to cut rates late in 2025.
Traders are fully pricing a 25 basis point reduction in Bank Negara Malaysia’s policy rate within 12 months, up from just a two-thirds chance at the beginning of the month.
Higher US tariffs on China, Malaysia’s biggest trade partner, would hurt an economy that has been showing resilience amid global tensions.
Any pressure on the yuan may weigh on the ringgit given their close correlation.
The local currency has also historically weakened in the second quarter.
Donald Trump’s planned tariffs on chip imports may also hurt exports for the Southeast Asian country. The US is Malaysia’s third-largest market for semiconductor exports.
However, pressure on the ringgit may ease amid growing bets for more interest-rate cuts from the Federal Reserve due to US recession fears.
Source: Bloomberg
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