In a research note, the investment bank said the return of foreign funds into emerging markets, driven by an anticipated reduction in the Federal Reserve’s (Fed) federal funds rate and narrowing interest differentials, is expected to bolster regional currencies, including the ringgit.

“However, due to the prolonged strength of the US dollar, we estimate the ringgit will average higher this year at RM4.64 (2023 average: RM4.56).

“While we are optimistic about the ringgit’s appreciation in the latter part of 2024, we remain vigilant of potential downside risks, particularly from external factors,” it said.

MIDF Amanah said the local currency appreciated 2.8% month-on-month to RM4.591 in July 2024, erasing all its losses during the first half of 2024 (H1 2024) and gaining slightly against the US dollar (0.1% year-to-date).

It said the ringgit’s broad strengthening throughout the month aligns with the gradual weakening of the greenback amid heightened expectations for Fed rate cuts.

“The ringgit’s performance against the greenback significantly outperformed most other regional currencies, supported by robust economic fundamentals and renewed foreign interest in the domestic equity market,” it added.

The investment bank also said that the weaker growth in China and the US, along with the escalating geopolitical tension, could adversely affect Malaysia’s external trade recovery while diminishing support for the ringgit.

“Furthermore, the sustained strength of the greenback, especially if the Fed delays rate cuts possibly due to persistently elevated inflation or stronger-than-expected US economic growth, will also impair the ringgit’s appreciation prospects,” it said.