KUALA LUMPUR (Feb 4): The ringgit is expected to head towards 3.80 against the US dollar — its strongest level in a decade — by December, propelled by a set of tailwinds for the Malaysian economy, said UBS.

A surge of investments into capital-intensive data centres and digital economy projects spanning multiple years implies sustained foreign currency inflows and a rising stock of foreign-owned ringgit assets, supporting demand for ringgit over the medium term, according to the Swiss bank.

The global technology cycle and artificial intelligence demand may “continue well into 2026” and drive trade surplus that “remains a constant source of support for the ringgit”, UBS said.

However, the ringgit has not seen the 3.80 level since 2015 when the currency depreciated sharply amid concerns over the 1Malaysia Development Bhd scandal, a major decline in oil prices, and broad US dollar strength.

The ringgit remains the best-performing major Asian currency in the first weeks of 2026, appreciating more than 3% against the US dollar amid expectations of falling US interest rates. The gain since the start of the year adds to the more than 10% gain against the US dollar in 2025.

Narrowing interest rate differentials also point to further upside for the ringgit against the greenback under pressure from a potential Federal Reserve rate cut, UBS’ strategists Teck Leng Tan and Dominic Schnider wrote in the note to clients.

“In contrast, we expect Bank Negara Malaysia to keep policy rates unchanged, against a backdrop of strong domestic growth tailwinds and recovering inflation,” the strategists said.

As the short-term interest rate gap between the US and Malaysia narrows, “this should consequently encourage more USD conversions into the ringgit by companies, as well as attracting yield-seeking investors to put capital into Malaysian government bonds”, they added.