KUALA LUMPUR (July 10): The Malaysian ringgit is likely to appreciate and close the year at around 3.90 versus the greenback, thanks to positive shifts in external sector drivers, BIMB Securities Research said.

"External factors are more influential to ringgit & KLCI than elections. The historical record suggests that the ringgit and FBM KLCI do not necessarily outperform after a general election, even during the pre-2000 period when the ruling coalition commanded a comfortable two-thirds majority," the house said in a Friday note.

Malaysia's financial markets, being small and open, have historically been shaped more by global factors like US rates, risk sentiment, commodity prices, and capital flows than by domestic election outcomes, it said.

BIMB projects the USD/MYR to average 3.95 for the rest of the year, as Malaysia’s favourable external sector dynamics alongside a narrowing interest rate differential with the US as catalysts to ringgit appreciation.

“While the Federal Reserve is expected to ease policy only cautiously, the reduction in the Fed funds rate-OPR spread should lessen support for the US dollar over time,” the house explained.

“Meanwhile, Bank Negara Malaysia is likely to keep their overnight policy rate unchanged at 2.75%, supported by steady growth and manageable inflation.”

BIMB also attributed their constructive outlook to Malaysia’s stronger-than-expected external sector performance this year, with resilient market exports being further supported by a sustained current account surplus and additional tailwinds from the AI boom.

“While the goods surplus moderated after the pandemic-era export boom, we expect it to strengthen again, supported by the AI-driven semiconductor upcycle and Malaysia’s exemption from US semiconductor tariffs,” BIMB said.

The research house has also flagged the tourism sector to be a key driver in their ringgit outlook, with an estimated 26.6 million foreigners visiting Malaysia in 2025. With the volume far exceeding pre-pandemic levels, BIMB predicts the recovery in tourism will contribute positively to Malaysia’s economic growth and external position.

Reflecting on other potential foreign influence, BIMB pointed out that Malaysia’s large stock of foreign currency deposits (FCD) will be useful in cushioning any potential periods of market volatility and supporting local currency demand. 

With deposits reaching above 11% in banking systems in the first four months of 2026 compared to levels below 3% in 2007, the increase in FCD highlights Malaysia’s deeper integration with global markets.

Despite concerns of the nearing elections possibly affecting market performance, the house is confident that they are reliable predictors of the currency’s direction, explaining that “historical USD/MYR performance around general elections have been far from uniform.”

“While periods of political clarity and policy continuity have typically provided support for the ringgit,broader global factors have often remained the dominant driver.”

At present, the USD/MYR is trading at a level of 4.07 ringgit per US dollar, according to Bloomberg.