KUALA LUMPUR (Sept 17): The ringgit on Thursday depreciated to its lowest level in nearly three months amid broad-based greenback strength at a time of rising US interest rates.

The ringgit hit 4.1000, its weakest level since June 26, as the US dollar rallied against most Asian currencies after investors digested the US Federal Reserve’s (Fed) decision to raise its policy rate for the first time in three years. 

The US central bank also signalled another rate hike this year.

A rise in US interest rates tends to spur capital flows towards safer, dollar-denominated assets that offer higher returns, putting pressure on emerging-market currencies, including the ringgit.

With the Fed funds rate projected at 4.10% in both 2026 and 2027, US assets are likely to remain more attractive, “limiting capital flows into emerging markets and reducing support for the ringgit”, said BIMB Securities. 

The research house downgraded its forecast for ringgit, expecting the local currency to depreciate further against the US dollar to 4.05 from 3.95 previously. 

“Looking further ahead, we expect USD/MYR to average 4.10 in 2027, before gradually strengthening to 4.00 in 2028 and 3.95 in 2029 as the Fed eventually resumes its easing cycle,” it said.

Meanwhile, MUFG Bank said should depreciation pressures intensify beyond the 4.15 level, markets may increasingly focus on the possibility of additional policy or foreign exchange support measures.

“While we remain medium-term constructive on the ringgit, the near-term environment argues for continued volatility as global markets adjust to a more hawkish Fed and higher US rates,” it said.

UOB Global Economics and Markets Research senior economist Julia Goh said: “We think there are upside risks for the US dollar, which indicates potential weakness for ringgit in near term as the rate differentials against US widens”. 

Kenanga Investment Bank expects the local note to recover towards 4.00 against the US dollar if expectations of further rate hikes, particularly a December hike, begin to fade.

“We maintain our year-end USD/MYR forecast of 3.95 but see 4.00 as the more realistic near-term anchor, with domestic variables deciding the rest. The direction of travel from current levels remains towards ringgit strength,” it said.