Chief economist at Bank Islam Bhd Firdaos Rosli said the ringgit has also strengthened against other major currencies at the same time, thus debunking the assumption that it is losing its worth.
He added that it was common for currencies to be valued against the US dollar, so when the greenback strengthened, it would look like the value of the paired currency has dropped.
The reality is that the ringgit remains strong and in certain instances has even risen against other currencies.
For instance, it has held steady against the Japanese yen, euro and British pound over the past few weeks despite falling steadily against the US dollar to hit a new low of 4.70 at the close of trading yesterday.
Firdaos said Malaysia should not be compared with Singapore and Hong Kong because their monetary policy objectives mirrored that of the US.
Since the beginning of the year, the ringgit has slid against the greenback by about 11.5%.
Firdaos said the US dollar’s performance was bolstered by the early reopening of their economy, which led to a drop in unemployment rates and high private consumption.
However, the inflation rate has also been creeping up since the second quarter of 2021. The US consumer price index hit 8.2% in September, compared with the 8.1% forecast.
The steady rise in oil prices amid higher energy demand and the Russian invasion of Ukraine also contributed to the high US inflation.
Firdaos said the US Federal Reserve (Fed) should have raised its rates earlier, but its chair Jerome Powell insisted the rate hike was unwarranted because US inflation then was considered “transitory”.
However, inflation eventually became persistent and this resulted in aggressive rate hikes to tame it.
In late September the Fed announced a 75bps rate hike, the latest in a series of increases, bringing the interest rate to the range of 3% to 3.25%, the highest since 2008. It also signalled more aggressive hikes going forward.
The market is already bracing for two more increases of 75bps each in November and December, bringing the interest rates within the range of 4.5% to 4.75% next year.
Nonetheless, there are other factors at play, too.
SPI Asset Management managing partner Stephen Innes said the ringgit seemed to be doing better than the British pound as it was being pitched against a specific currency that was faring a little worse.
“Perhaps the ringgit is the cleanest dirty sheet in the laundry, amongst a bunch of weak currencies. The strong US dollar does not give Asian currencies like the ringgit a free pass either,” he said.
The problem also feeds itself. On the one hand, the lack of international capital inflow leads to a weakening of the currency. On the other, a weak currency discourages investors from coming in.
Furthermore, Innes said, investors are now focusing mainly on the greenback and other safe-haven assets, diverting capital out of Malaysia.
Malaysian exporters also play a role in adding pressure on the ringgit, he said.
“They prefer to trade with US companies because of the country’s strong economy and they hold on to the US dollar rather than convert it back to ringgit. This further weakens the local currency,” he added.
Innes said the only way out of this quagmire is for a global intervention that involves all central banks coming together to intervene in the market at the same time.
However, the chances of this happening is quite remote.