The ringgit’s impressive performance over the past year is now under pressure as Malaysia’s largest trading partner, China, faces economic uncertainty amid an ongoing trade war with the US.
With President Donald Trump imposing a 10% tariff on all Chinese goods, Bloomberg Economics estimates that China’s GDP could take a 0.9% hit. This could spell trouble for Malaysia’s trade-dependent economy and add pressure on the ringgit, which is already dealing with foreign stock sell-offs and a stronger US dollar.
A Bloomberg survey suggests that the ringgit may depreciate by 2.5%, reaching 4.55 per dollar by the end of March. Foreign investors have already offloaded $761 million worth of Malaysian equities this year—the highest outflow among Southeast Asian nations—weakening the ringgit further.
External Pressures on the Ringgit
Lloyd Chan, a currency strategist at MUFG Bank Ltd., warns that “global trade uncertainty will remain a key drag.” He expects additional US tariff measures, which, combined with declining market sentiment in Asia, could weigh down the ringgit even more.
Despite being one of the best-performing emerging market currencies in 2024, the ringgit remains highly vulnerable to trade war escalations due to Malaysia’s deep trade ties with China. According to the International Monetary Fund, about 25% of Malaysia’s exports go to China, making it one of the most exposed economies in Asia.
The ringgit appreciated by 2.7% last year, but this very strength makes it more susceptible to a sharp correction if trade tensions worsen. Trump has already signaled the possibility of “very, very substantial” tariffs on China should negotiations fail.
Malaysia’s Response and Outlook
Some experts, including Barclays strategist Lemon Zhang, suggest that the ringgit’s relatively mild depreciation post-US elections indicates room for further declines. Should Trump impose a blanket tariff on critical imports, the ringgit could face even greater downside risks.
On Friday, the currency dipped slightly to 4.4397 per dollar. Analysts believe that Malaysian authorities might intervene to stabilize excessive fluctuations. Bank Negara Malaysia has previously encouraged state-linked firms to repatriate and convert foreign earnings to bolster the currency after it hit its weakest level since the 1998 Asian financial crisis.
Meanwhile, Prime Minister Anwar Ibrahim remains optimistic about Malaysia’s economic resilience. The nation is set to release its fourth-quarter GDP report on Friday, which will provide further insight into its economic trajectory.
“Risks to the ringgit come from broader dollar movements driven by trade tensions and higher US interest rates,” said Abhay Gupta, FX and rates strategist at Bank of America Securities.
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