The research house said the ongoing US macro underperformance, which contributes to the market’s dovish narrative of the Federal Reserve, is also likely to further undermine the US index, supporting the local note’s appreciation.

“Looking ahead, a further shift in portfolio allocation toward emerging markets, combined with the expectation that Bank Negara Malaysia will maintain the overnight policy rate at 3% for at least the next 12 months, is likely to support the ringgit’s upward trajectory, with the potential to reach the 4.25 level by end-2024,” it said in a note.

Kenanga said after three straight months of decline the central bank’s international reserves rebounded by US$3.8 (RM17.73) billion, or 3.5% month-on-month, reaching a high of US$112.3 (RM524.05) billion as of Nov 30, 2023 (US$1=RM4.67).

The ringgit also strengthened versus the greenback amidst growing anticipation of a Fed pivot, triggered by the US faltering labour market, diminishing inflationary pressure, and fragility in the housing market.

In addition, the better-than-expected Malaysia third quarter (Q3 2023) gross domestic product (GDP) reading, coupled with the government’s ongoing commitment towards fiscal consolidation and the narrowing of the 10-year government bond yield differential has further boosted the local note.

Meanwhile, on the bond market, the research house noted that foreign investors made a comeback in November, driven by a turnaround in risk appetite.

For the first time in four months, they were net buyers of Malaysia’s debt securities last month (totalling RM5.4 billion; Oct: -RM2.6 billion).