Ringgit's struggle against the US dollar

Source: xe.com

The Malaysian ringgit has experienced significant volatility against the US dollar in recent times, reflecting broader global economic trends and domestic factors.

As of late 2024, the ringgit has been under pressure, trading at one of its weaker levels compared to previous years.

Several factors have contributed to this trend, ranging from global macroeconomic conditions to specific challenges within Malaysia.

Globally, the US dollar has remained strong due to the Federal Reserve’s continued policy of high interest rates to combat inflation.

This has attracted more foreign investment into the US, leading to a higher demand for the dollar and thus, weakening other currencies like the ringgit.

Moreover, geopolitical tensions and global economic uncertainty, particularly involving key trade partners like China, have contributed to the flight of capital towards safer assets denominated in US dollars.

Domestically, Malaysia faces several challenges that have weighed on its currency. Despite moderate economic growth, the country continues to grapple with inflationary pressures, high public debt, and a slower-than-expected recovery in the post-pandemic era.

Additionally, falling commodity prices, particularly palm oil and crude oil, which are crucial exports for Malaysia, have dampened investor confidence in the ringgit.

As Malaysia is highly dependent on trade, any disruption or weakening of global demand for these commodities tends to negatively impact the ringgit.

However, some analysts see potential for a gradual recovery in the ringgit, contingent on several factors.

If global inflation rates stabilize and the Federal Reserve eases its monetary tightening, the US dollar may weaken, providing some relief to currencies like the ringgit.

Additionally, Malaysia’s economic resilience, particularly if the government enacts policies that stimulate growth and investor confidence, could improve the ringgit’s performance.

A potential improvement in relations with key trading partners and an increase in commodity prices would also support a stronger ringgit.

In the near term, the outlook for the Malaysian ringgit remains cautious, with global uncertainties and domestic economic challenges continuing to weigh on the currency.

Nonetheless, with strategic fiscal policies and global market stabilization, the ringgit could eventually regain some strength against the US dollar.

JIWA MERDEKA

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