KUALA LUMPUR: The ringgit may be heading for a rough ride in 2025, with external risks such as a Trump 2.0 presidency in the United States and domestic vulnerabilities like fiscal reliance on oil and gas revenue creating a challenging outlook for the Malaysian currency.
Maybank Investment Bank head of regional equity research Anand Pathmakanthan highlighted Malaysia’s susceptibility to global shifts, particularly in US trade and monetary policies, as key factors weighing on the ringgit’s prospects.
He said Donald Trump’s election victory has already stirred reactions across global markets.
“A Trump 2.0 scenario would undoubtedly favour US equities, which is quite scary for the rest of us. This bullish outlook for the US market has driven down other asset classes, including emerging market equities, crude oil and currencies like the ringgit,” Anand said at the ICAEW Economy Insight Conference 2024 today.
He noted that Malaysia’s close trade ties with China compound its challenges.
“The ringgit is sensitive to two key vulnerabilities, which are tariffs on China and US Treasury yields. When the China yuan weakens due to trade concerns, we follow suit,” Anand explained, adding that the ringgit is also impacted by rising US yields, with inflationary concerns pushing investors towards the dollar.
Adding to the strain on the ringgit, he said, is Malaysia’s heavy reliance on oil and gas revenues, which still account for about 20% of fiscal income.
“Trump’s pro-energy policies, including lifting restrictions on US oil exports, could suppress global crude prices. This could hit Malaysia’s revenue streams hard,” he noted.
However, Anand said Malaysia’s extensive trade agreements offer a potential lifeline.
“The country is a signatory to the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and is a key member of Asean. These agreements are a strength. If US trade becomes less viable, we have alternatives to fall back on,” he said, emphasising that Malaysia’s upcoming Asean chairmanship provides further opportunities to strengthen regional trade ties.
Looking ahead, Anand highlighted that the ringgit’s trajectory will depend heavily on Malaysia’s ability to mitigate external risks and leverage its trade partnerships.
“While global dynamics may create headwinds, Malaysia’s positioning within multilateral agreements and its focus on diversifying trade relationships could offer some stability. The ringgit is facing a challenging year, but Malaysia’s diversified trade relationships and strategic role in Asean provide options to navigate these uncertainties,” he said.
With 2024 shaping up to be a volatile year for emerging markets, Anand said, Malaysia’s ability to balance external pressures and internal reforms will be crucial.
“As the global economic landscape evolves, the ringgit will remain under scrutiny as a barometer of Malaysia’s resilience in the face of mounting challenges.”
