KUALA LUMPUR (July 6): The ringgit could remain volatile in the near term as domestic political risks and broader foreign exchange swings weigh on sentiment, but Malaysia’s domestic fundamentals should help cushion the currency, according to MUFG Bank.

The Japanese bank expects the US dollar-ringgit pair to rise to 4.10 over the next three months, before easing to 4.00 over the next 12 months, suggesting some near-term weakness before the local note recovers.

MUFG said Bank Negara Malaysia’s (BNM) renewed foreign exchange support measures should help stabilise the ringgit, though they are unlikely to trigger the kind of sharp rally seen in 2024.

The measures are similar to BNM’s earlier move encouraging government-linked companies and government-linked investment companies to repatriate and convert their foreign income into ringgit, the bank said.

“BNM’s measures should help to support near-term stabilisation in MYR,” MUFG said, noting however that the "ringgit is no longer as cheap as it was back in 2024".

MUFG said Malaysia’s benign inflation backdrop gives BNM room to keep the overnight policy rate unchanged, while fuel subsidies have helped shield the economy from the recent energy price shock.

The bank said Malaysia’s trade surplus has also held up relatively well despite geopolitical risks, supported by the electronics upcycle and palm oil exports. 

Investment approvals in manufacturing and services, particularly those linked to data centres and cloud computing, remain encouraging and should support business confidence and employment.

The ringgit’s medium-term support is also underpinned by a resilient labour market, with healthy wage growth and low unemployment helping to keep domestic demand intact, MUFG added.

However, the bank flagged political uncertainty as the key near-term risk for the ringgit. It said headlines around a possible early general election, as well as state elections in Johor and Negeri Sembilan, have raised concerns over political risk.

MUFG noted that the ringgit had historically underperformed against the US dollar in the run-up to past general elections, while rising short-term volatility points to a risk of near-term weakness.

Across Asia, MUFG expects currencies to benefit from a softer US dollar in the second half of 2026 but said gains are unlikely to be broad-based. 

Instead, currency performance will increasingly depend on country-specific fundamentals, capital flows, trade surpluses and exposure to the artificial intelligence (AI)-led investment cycle.

Malaysia is seen as one of the economies benefiting to some extent from the AI and technology supply chain, although MUFG said Asian currency gains are likely to be measured rather than sharp.