It said in a statement that the influx of foreign funds into emerging markets is expected to benefit regional currencies and the ringgit.

“The expected recovery in Malaysia’s external trade and an optimistic economic outlook are poised to bolster the ringgit’s performance this year.

“Elevated commodity prices would also drive increased demand for the ringgit.

Furthermore, it said that the ringgit would likely benefit from anticipated policy easing by major central banks, in addition to the expectation that Bank Negara Malaysia (BNM) would maintain the overnight policy rate (OPR) at 3% this year.

Despite its optimism for the ringgit’s appreciation in the latter part of 2024, MIDF Amanah said it remains cautious of downside risks, primarily from external factors.

“For instance, weaker growth in China and the US, as well as escalating geopolitical tensions could negatively impact Malaysia’s external trade recovery, thereby reducing support for the ringgit,” it said.

MIDF Amanah also pointed out that the extended strength of the US dollar, particularly if the Fed delays rate cuts further due to persistently high inflation or stronger-than-expected US economic growth, would also weaken the ringgit’s prospects.

In June, the MIDF Trade-Weighted Ringgit Index (TWRI) rose by 0.2% month-on-month (m-o-m) to 86.25, signalling the ringgit’s outperformance against the currencies of Malaysia’s trading partners.

Year-to-date, the index gained by 1.1%, underpinned by the ringgit’s gains against the Japanese yen (10.3%), the Korean won (3.8%), and the Thai baht (3.8%).

Meanwhile, BMI, a Fitch Solutions company, also expected the ringgit to appreciate later this year, rising from RM4.70, currently against the US dollar to RM4.55 against the US dollar by the end of 2024.

For 2025, BMI expected the ringgit to strengthen by 3.3%, reaching RM4.40 versus the US dollar.

“Over the medium-term, we hold a positive view on the ringgit as narrowing interest rate differentials with the US and a relatively strong growth outlook should remain supportive of the currency,” it said.

BMI has revised its end-2024 Fed funds rate forecast to 5% from 4.75%, implying that narrowing yield differentials would support the ringgit, particularly if BNM leaves its OPR on hold at 3% throughout the end of 2024.

“Risks to our forecasts hinge largely on the Fed’s interest rate trajectory and China’s recovery,” it said in a note.

From a growth perspective, Malaysia’s relatively strong real gross domestic product (GDP) growth outlook vis-a-vis the US would bode well for investor sentiment and provide a favourable backdrop for the ringgit.

As such, BMI has forecasted Malaysia’s real GDP growth to accelerate from 3.7% in 2023 to 4.4% and 4.5% in 2024 and 2025, respectively.

“Resilient foreign direct investment inflows would continue to be supportive of the ringgit,” said BMI.