MUFG’s Lloyd Chan notes that MYR has underperformed since the June FOMC as higher US yields and wider US-Malaysia rate differentials weigh on the currency. While the bank’s medium-term constructive view on the ringgit remains intact, it now holds a near-term bearish bias as domestic fundamentals stay solid but US rate dynamics dominate.

Ringgit pressured by US rate dynamics

"For the ringgit, our previous constructive view—anchored on narrowing rate differentials with the US and resilient manufacturing and electronics exports—remains intact over the medium term."

"The recent weakness instead reflects a shift toward US rate dynamics rather than any deterioration in domestic fundamentals."

"Against this backdrop, contained inflation and sustained fuel subsidies reduce the urgency for Bank Negara Malaysia to tighten policy, leaving MYR increasingly exposed as US-Malaysia rate differentials widen."

"This underpins a near-term bearish bias on the ringgit, although we expect macro fundamentals to reassert themselves once US rate pressures ease."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)