Ringgit poised for gains as strong growth, exports support outlook

KUALA LUMPUR: In 2027, the Malaysian ringgit is projected to appreciate further, according to RHB Research. Analyst Alexander Chia attributes this to Malaysia's robust growth and export performance, which will serve as the main domestic support for the currency. The ringgit is expected to gradually strengthen throughout 2027 due to a combination of stronger economic growth, increased export earnings, and a persistent current account surplus. However, the potential for a greater US interest rate advantage may cap gains in the short term.

RHB Research has updated its US dollar/ringgit forecasts, predicting the exchange rate will reach 4.05 by year-end 2026 and 3.98 by year-end 2027. This moderate appreciation outlook contrasts with a more abrupt movement. They anticipate the US Federal Reserve to raise its federal funds rate one more time in Q4 2026, maintaining the favorable interest rate differential between the two currencies and thus limiting near-term ringgit gains.

Malaysia's economy grew by 6.0% year-on-year in the second quarter of 2026, surpassing the 5.4% growth in the first quarter. This surge was driven by resilient consumer spending, investments, and external demand. Chia forecasts Malaysia's economy to expand by 5.4% in 2026 and 4.9% in 2027, outpacing its pre-pandemic average growth despite some slowdown next year.

Export momentum is contributing to the currency's appreciation, with August shipments soaring 45.5% year-on-year to RM191 billion. Chia attributes this growth to rising demand for semiconductors, data-processing equipment, electrical and electronics products, and data-center infrastructure, which will generate foreign-currency receipts and bolster corporate demand for the ringgit. Malaysia's electronics trade surplus is also expected to help mitigate the impact of rising energy import costs due to high oil prices.

A persistent current account surplus is another key factor supporting the ringgit's long-term strength. In the second quarter of 2026, Malaysia recorded an RM10.8 billion current account surplus, with Bank Negara forecasting the surplus to remain between 1.5% and 2.5% of GDP for the full year. Their projections place the current account surplus above 2.2% of GDP for both 2026 and 2027, driven by the goods trade surplus and improving tourism receipts.

This surplus reduces Malaysia's reliance on external financing and creates an underlying supply of foreign currency when exporters and other resident companies convert their overseas earnings.

Nevertheless, Chia notes that a current account surplus alone does not guarantee ringgit appreciation, as some export revenues might remain abroad. Nonetheless, he asserts that the surplus should lessen the currency's vulnerability in comparison to regional economies that heavily depend on foreign capital to finance external deficits.

Factors such as a stronger US dollar, higher US yields, and renewed global risk aversion pose significant risks to the ringgit outlook. Chia warns that heightened US economic data, additional Federal Reserve tightening, or a further rise in the US term premium could lead to capital flight from Malaysian Government Securities, further stressing the currency.

While Malaysia's energy exports and electronics trade surplus offer some protection against broader risk offflows, they may not be sufficient to offset global risk aversion or domestic cost pressures resulting from prolonged high oil prices. On the fiscal side, higher energy subsidies, reduced tax collection, slower subsidy rationalisation, or lower Petronas dividends could make achieving the government's deficit targets more challenging.

Chia predicts that a combination of stronger US dollar demand, foreign outflows from Malaysia Government Securities (MGS), and fiscal deterioration could delay the anticipated decline in USD/MYR and present the primary downside risk to the 4.05 and 3.98 forecasts.