MUFG’s Lloyd Chan notes that the Malaysian ringgit outperformed, rising 0.4% against the US dollar (USD) after Bank Negara Malaysia (BNM) reintroduced its 2024-style currency support measure to encourage the repatriation and conversion of overseas profits. While USD/MYR has retreated from around 4.15, Chan believes the gains will be less sustainable than in 2024 given expectations of further Fed tightening and continued external pressures.

BNM support faces challenging environment

“More broadly, the combination of strong US data and the Fed’s delayed monetary easing continues to support the dollar through favorable spreads. Most Asian currencies continue to face relatively lower, and in some cases widening, yield differentials compared to the United States, limiting opportunities for sustained appreciation. The dynamics of capital flows in an environment of sustained high interest rates in the US may be a key driver of the performance of Asian currencies.”

“Against this backdrop, the Malaysian ringgit stood out yesterday, appreciating 0.4% against the US dollar. This was likely supported by Bank Negara Malaysia’s re-introduction of a 2024-style currency support measure encouraging the repatriation and conversion of overseas profits by government-linked enterprises.”

“USD/MYR has retreated from around 4.15, likely indicating early traction from the policy move. However, the persistence of gains is likely to be more limited compared to the 2024 episode given the different macro backdrop.”

“Unlike earlier periods when markets were pricing in Fed easing, the current environment is characterized by expectations of further tightening of interest rates, which may continue to exert external pressure on the currency. Therefore, while policy support should help stabilize the ringgit in the near term, the scope for sharp appreciation appears limited.”

(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)