KUALA LUMPUR, April 4 (Xinhua) -- Despite prolonged tensions in the Middle East, Malaysia's ringgit is expected to continue its upward trajectory against the U.S. dollar in 2026, supported by narrowing interest rate differentials and potential Federal Reserve (Fed) rate cuts, according to research houses.
MBSB Research is keeping its expectation that the ringgit will continue to strengthen further against the U.S. dollar, as it revised its forecast for 2026 to average around 3.92 ringgit from an average of 4.28 ringgit in 2025.
"This continued appreciation is primarily underpinned by a slight narrowing in the differential between Malaysia's overnight policy rate and the U.S. fed funds rate, as the Federal Open Market Committee's latest dot plot continued to signal potential one more rate cut," the research house said in a recent note.
It added that the Malaysian currency has maintained its strength even in the face of a rebounding U.S. dollar, successfully breaching the 3.90 ringgit level. This outperformance was supported by the positive market confidence in Malaysia's domestic recovery.
However, it still expects the ringgit to experience volatility during the increasing period of geopolitical uncertainty.
The ringgit depreciated by 3.9 percent month on month in March, closing the month at 4.046 ringgit as compared to 3.893 ringgit in February, breaking the 4.00 ringgit level towards the end of the month amid heightened geopolitical uncertainty.
Meanwhile, Hong Leong Investment Research said it envisions the ringgit to recover towards the fourth quarter as it draws closer to the Fed's rate reduction.
"Accordingly, we project the RM/USD exchange rate to average 4.00 in 2026 and end the year at 3.90," it said in a note on Friday.
However, given the plausible delay in rate cuts by the U.S. Federal Reserve, it expects USD strength to persist in the near term.
Bank Negara Malaysia (BNM)'s governor Abdul Rasheed Ghaffour has also commented lately that the ringgit will remain driven by market conditions and global forces.
Towards this end, he said BNM remains committed to ensuring orderly markets.
"Global factors, such as the U.S. dollar performance, played a role, but so did our domestic strength. Year-to-date, this positive trajectory has continued, although recent developments are causing some movements," he added. ■