KUALA LUMPUR, Jan 29 — The ringgit’s sharp rise over the past year is being fuelled by deeper structural strengths in Malaysia’s economy, rather than simply riding on the back of a softer US dollar — a sign that the currency’s gains may prove more durable.
An analysis by Bloomberg shows that global macro factors such as shifts in risk appetite and movements in the greenback account for only about a quarter of the ringgit’s roughly 12 per cent appreciation over the past 12 months, the strongest performance among Asian currencies.
The bulk of the advance has instead been underpinned by firm domestic fundamentals, including stronger-than-expected growth and rising investment inflows, which have pushed the ringgit to its highest level since 2018.
Wee Khoon Chong, director of Asia-Pacific macro strategy at BNY, said the currency’s outperformance is largely linked to foreign direct investment, particularly into data centres, alongside solid growth momentum and the resumption of fiscal consolidation.
These factors, he said, position the ringgit to continue outperforming its emerging-market peers in the first half of the year.
The analysis compared the ringgit’s movements against indicators such as the Bloomberg Dollar Spot Index, US two-year Treasury yields and the MSCI World equity index.
It found that global yields and equity trends exerted far less influence on the ringgit than they did on currencies such as the Thai baht, Singapore dollar and Philippine peso.
Investor confidence in Malaysian assets has strengthened as the trade-dependent economy has shown resilience despite the introduction of 19 per cent US tariffs last year.
Gross domestic product expanded by 5.7 per cent in the October-December quarter, helping full-year growth exceed official projections.
Malaysia’s growing role in the artificial intelligence supply chain and its emergence as a regional hub for data centre development have also added to its appeal, opening up new avenues for long-term growth.
Foreign investment across services, manufacturing and primary sectors surged by more than 47 per cent year-on-year in the first nine months of 2025, according to the Malaysian Investment Development Authority.
Wee added that optimism surrounding the Johor-Singapore Special Economic Zone has further lifted sentiment.
The government this month announced a range of tax incentives aimed at attracting investors to the zone, which is projected to contribute US$26 billion annually to the economy by 2030.
A detailed blueprint is expected to be unveiled in the first quarter.
Still, risks remain on the horizon.
Economic growth is forecast to moderate to between 4 and 4.5 per cent in 2026, down from 4.9 per cent last year.
HSBC has also flagged Malaysia’s bond market as among those most exposed should a sharper rise in Japanese yields prompt investors there to repatriate capital.
Despite these challenges, major investment banks remain upbeat on the ringgit’s outlook.
Goldman Sachs said strong technology exports, continued foreign investment and a steady monetary policy stance from Bank Negara Malaysia should continue to support the currency into 2026.
In a separate report published on January 23, the bank forecast the ringgit strengthening to 3.85 against the US dollar over the next 12 months.
The currency has already gained more than 3 per cent in January and extended its winning streak to six consecutive sessions on Wednesday, ending at 3.92 per dollar.
A return of foreign funds to Malaysian equities has also bolstered sentiment. Overseas investors have recorded net inflows of nearly US$308 million (RM1.2 billion) so far this month, following net outflows of more than US$5 billion last year.
