Currency markets are currently being shaped by US interest rate expectations, energy prices and global risk sentiment. The US dollar strengthened in September and October, supported by stronger-than-expected US economic data, rising oil prices and a more hawkish Federal Reserve. While lower oil prices and softer US yields generally favour Asian currencies, the current backdrop has supported the dollar. Currency performance has become more differentiated, reflecting relative economic fundamentals, monetary policy and capital flows. Against this backdrop, a selective approach across FX might be beneficial.

We do not expect the dollar’s recent rally to persist. The Fed raised its policy rate by 0.25% to 3.75-4.00% in September, kept rates unchanged in October, and we expect one further 0.25% hike in December, followed by rates remaining on hold throughout 2027. Meanwhile, the market is currently priced for more adjustments than we expect, leaving room for disappointment and for the dollar’s relative support to fade as other central banks tighten and global growth momentum broadens. Within G10, monetary policy divergence remains important. The RBA raised rates to 4.60%, with another 0.25% increase expected in Q4, while we see the ECB also hiking by 0.25% in December and February. The BoJ also raised its policy rate by 0.25% to 1.25% in September. These differences may support a case for currency diversification rather than taking an aggressive directional position on the USD.

The same differentiation is visible across Asia, where strong exports and a policy backdrop favouring stability have supported KRW and RMB, respectively. The ringgit has also shown resilience, although its performance has not been one-directional. USD/MYR traded around 4.03 in late August before moving back towards 4.08 in October, while MYR moves have generally been more measured than those of KRW. An important source of support has come from corporate FX conversion. Malaysian exporters and corporates repatriating overseas revenues and selling USD to buy MYR, increase demand for the ringgit, creating appreciation pressure or limiting depreciation.

More broadly, Malaysia’s domestic backdrop remains supportive. The economy expanded by 5.3% year-on-year in Q3 2026 (advanced estimate), above market expectations of 5.1% and our analysts’ 4.9% forecast. This marked a fifth consecutive quarter of growth above 5%, bringing year-to-date growth to 5.5%. Growth remains broad-based, with manufacturing expanding by more than 7%, benefiting from the AI-related export boom and high commodity prices, alongside continued support from services and construction. We expect GDP growth of 5.2% in 2026, exceeding Bank Negara Malaysia’s forecast of “around 5%” for 2026, and around 5% in 2027. Fiscal consolidation should provide additional reassurance, with the deficit expected to narrow to 3.3% of GDP in 2027 and 3% by 2028.

There are nevertheless some constraints for the ringgit. Malaysia’s policy rate is currently below the Fed funds rate, reducing MYR’s relative carry appeal and potentially moderating the conversion of foreign currency proceeds into ringgit. Higher oil prices present another risk through Malaysia’s fuel-subsidy bill, although solid domestic growth provides an offset. MYR support is therefore likely to come primarily from robust growth, exports, capital flows, corporate FX conversion and fiscal credibility rather than carry.

Overall, we expect USD/MYR to remain primarily driven by the global macro environment. US rates and geopolitical uncertainty support the dollar, but tightening by other major central banks reduces its relative advantage. For MYR, the balance appears moderately constructive, supported by stronger-than-expected domestic growth, fiscal discipline and potential corporate dollar selling. Appreciation is unlikely to be linear as higher US yields, weaker global risk sentiment or further Fed tightening could periodically push USD/MYR higher. There is potential for gradual MYR appreciation rather than a sharp or uninterrupted strengthening move.

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Disclaimer: HSBC Bank Malaysia Berhad (Reg. No. 198401015221 (127776-V)) (“HSBC Malaysia”). For persons in Malaysia only. Please note that HSBC Malaysia cannot be held responsible for any losses, damages, or other consequences that may result from using or relying on this article. The article provides a high-level overview of the recent economic environment and is prepared for information purposes only. It does not constitute any advice, offer or solicitation to buy or sell any financial product or investment. Past performance is not indicative of future results.