KUALA LUMPUR (July 1): The ringgit could weaken further amid expectations of rising US interest rates, adding to the pressures facing the Malaysian equity market, Hong Leong Investment Bank (HLIB) flagged.

The Federal Reserve is now more hawkish, reinforcing broad US dollar strength at a time of fragile US-Iran truce and an increasingly fluid domestic political landscape, the research house said in a strategy note for the second half of 2026.

“These factors are collectively expected to keep the ringgit under pressure,” HLIB said. “However, we expect this weakness to prove transitory.”

The US dollar has appreciated more than 3% against the ringgit since the May 22 appointment of Kevin Warsh as the chair of the Federal Reserve. The DXY index, which tracks the strength of the dollar against a basket of major currencies, has also gained.

The ringgit was trading at 4.0900 against the US dollar on Wednesday. There are also concerns of lingering supply chain pressures even if the Middle East conflict were to end immediately.

Interest rate differential should stabilise, “providing a more conducive environment for capital inflows to return and supporting a ringgit recovery into year end,” HLIB said.

The conclusion of the next general election, which the research house speculates could take place by “late 2026, should help lift the overhang of policy uncertainty”. The house is projecting the ringgit to average 4.1000 before ending 2026 at 4.05 against the dollar.

But once all uncertainties are cleared, the KLCI is expected to hit 1,770 point by year end, HLIB said. “We feel that the record low foreign shareholding, alongside a persistent underweight position by foreigners, offers downside cushion,” it added.