By Syafirah Mohd Shahar, Multipotentialite
The Ringgit, Malaysia's currency, has been grabbing headlines due to its fluctuating performance against the US Dollar and other major currencies. This volatility is driven by global economic factors, including shifts in the United States Federal Reserve's interest rates and inflation. Additionally, geopolitical events like the Palestine-Israel conflict have influenced the Ringgit as investors seek refuge in the US Dollar during uncertain times. However, Malaysia's endeavours to reduce US Dollar dependence and promote the Ringgit in international trade further enhance its significance.
Therefore, understanding finance is imperative for Malaysians as it directly impacts their financial well-being, employment opportunities, investments, and long-term security. Besides, it also equips individuals to navigate government policies into their daily activities and grasp global economic interconnections effectively so that there will be fewer impractical accusations on the current government's best initiatives. Moreover, when more Malaysians are able to independently explore the factors behind Ringgit's recent performance, they will surely be involved in an in-depth analysis of currency market dynamics, global economic trends, geopolitical forces, and government initiatives, which eventually would shed light on these recent currency shifts.
Ringgit's Strong Start on Oct 4, 2023
On October 4, 2023, the Ringgit began the day on a strong note, with a favourable exchange rate against the US Dollar. This early gain was a welcome sight, given the concerns about the United States Federal Reserve's (Fed) plans for interest rate hikes. The Ringgit stood at 4.7200/4.7250 against the US Dollar, which indicated a slight improvement from the day before.
Factors Behind the Performance
The key question is, what is driving the Ringgit's performance? The performance of the Malaysian Ringgit is a topic of keen interest, and several factors are influencing its value. Firstly, the US Dollar's recent strength, as indicated by the US Dollar Index (DXY), has been on the rise due to the Federal Reserve's approach to interest rate hikes and concerns about inflation. This trend, along with an increase in the yield of US 10-year Treasuries, has raised global inflation worries, leading some experts, like Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, to express caution about the Ringgit's future strength.
However, the Ringgit's performance is not solely dictated by the DXY. Several factors can contribute to its movements, even in the face of a stronger US Dollar. Factors include the performance of Malaysia's economy, which includes GDP growth, inflation, trade balances, and employment figures, as robust economic fundamentals can support the Ringgit. Malaysia's status as a major commodities exporter, especially in palm oil and natural gas, also means that fluctuations in commodity prices play a significant role in determining the Ringgit's value. Additionally, investor sentiment, risk appetite, and confidence in Malaysia's economic stability can drive currency movements, as investors may seek higher yields and invest in Ringgit-denominated assets. Diverging interest rate policies between the US Federal Reserve and Malaysia's central bank, Bank Negara Malaysia, can influence capital flows and the Ringgit's performance.
It is essential to understand that currency markets are intricate and influenced by a combination of these factors. Notably, when comparing the Ringgit to other currencies, results have been mixed, with gains against the Euro and British Pound but losses against the Japanese Yen. In the broader Asian currency landscape, the Ringgit had varying results, strengthening against some currencies like the Singapore Dollar and Thai Baht but not experiencing significant changes against others like the Philippine Peso. Overall, the Ringgit's performance is closely tied to factors such as the Fed's policies and global economic dynamics, making it a subject of considerable interest in the financial world.
Ringgit Hits 25-Year Low on Oct 19, 2023
Fast forward to October 19, 2023, and the scenario takes a different turn. The Ringgit hit a 25-year low against the US Dollar, raising concerns about its value. The root of this issue lies in the United States Federal Reserve's anticipated persistence in keeping interest rates high, making the US Dollar stronger.
The Impact on Malaysia’s Economy
When the Ringgit hits a 25-year low against the US Dollar due to the United States Federal Reserve's commitment to maintaining high-interest rates, it can impact Malaysia's economy in several ways. A weaker Ringgit can lead to higher inflation by raising the cost of imported goods and services, potentially impacting the cost of living. It may affect the trade balance, making exports more competitive but increasing the cost of imports. Foreign-denominated debt can become more expensive to service, potentially straining finances. Investor sentiment, tourism, foreign direct investment, and capital flows may also be influenced. Therefore, the central bank's interventions and government responses are critical in managing these impacts. However, it is important to highlight that the Ringgit is not alone in facing these challenges as many Asian currencies are also grappling with similar issues.
Efforts to Stabilize the Ringgit
Malaysia is actively addressing the situation by exploring ways to reduce its reliance on the US Dollar. The government is engaging in discussions with countries like China, Indonesia, and Thailand to use their own currencies for trade. There is also talk of establishing the Asian Monetary Fund (AMF), a financial safety net for Asian countries during financial crises. Furthermore, Malaysia intends to introduce a global tax for large international companies, measured in currencies other than the US Dollar. These efforts are all geared towards making Malaysia less dependent on the US Dollar.
Ringgit Ends the Week on a Positive Note on Oct 20, 2023
Now, looking at October 20, 2023, there is a positive note for the Ringgit. It gained strength against the US Dollar, closing at 4.7655/7700, compared to 4.7680/7710 the previous Thursday.
The Boost for the Ringgit
This upturn can be attributed to Malaysia's falling inflation rate, which reached 1.9 per cent in September. Additionally, the early estimate for Malaysia's third-quarter Gross Domestic Product (GDP) is promising, increasing to 3.3 per cent from 2.9 per cent in the second quarter of 2023. These factors reflect a steady Malaysian economy, despite uncertainties in foreign exchange markets and demand from other countries.
Keeping an Eye on World Events
However, experts remain vigilant about events in the Middle East, as they can have a significant impact on the global economic situation. Another thing to consider is the unique position of the US Dollar, which some experts believe is quite strong but may not strengthen much further. This situation can be advantageous for other Asian currencies, including the Ringgit.
Comparing with Other Currencies
While our national currency did not fare as favourably against certain major currencies, such as the British Pound and Euro, the Ringgit did make gains against the Japanese Yen. This is because, within the Asian currency spectrum, the Ringgit demonstrated resilience by strengthening against the Thai Baht and Indonesian Rupiah, all while maintaining stability against the Philippine Peso.
In summary, the Ringgit's performance has been a dynamic journey, influenced by a plethora of factors. While it encountered challenges, notably against the US Dollar, Malaysia's proactive initiatives, buoyed by encouraging economic indicators and strategic steps to diversify away from US Dollar reliance, underscore the government's commitment to fortify the Ringgit's resilience. Furthermore, with the vigilant oversight of the central bank's mitigation measures, these proactive strategies are poised to foster a robust currency outlook.
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