In a note, the investment bank maintains its preference for emerging markets (ringgit) and developed markets (Japanese yen) based on expectations of faster Federal Reserve (Fed) rate cuts in 2024-2025.

“The ringgit and yen have appreciated sharply against the greenback, as anticipated when we elevated them to our top foreign exchange (FX) picks, and there is potential for further strength in the near-term,” CIMB Investment said.

The investment bank noted that a combination of front-loaded US rate cuts, positive exports and FDI prospects, the unwinding US dollar longs and normalising bond/equity non-resident exposure supports the view that the US dollar could potentially exceed its fair value of 4.30 against the ringgit.

“We turned constructive on the ringgit in March and believe that gains could persist in the near-term as net FX inflows increase,” it added.

CIMB Investment highlighted that the recovery in electrical and electronic (E&E) product exports and trade surplus may add up to US$2 billion (RM8.85 billion) per month in net foreign currency (FCY) proceeds through end-2024.

“Moderating USD/FCY preferences, due to narrowing US-Malaysia yield differentials and coordinated encouragement of flexible two-way flows for exporters and resident investors, should help translate this into ringgit gains,” it said.

As at 2.47pm, the ringgit was trading higher at 4.4200/4.4280 against the US dollar compared to 4.4945/4.4995 at Friday’s closing.