The ringgit’s sharp appreciation over the past year has been driven largely by strengthening domestic fundamentals rather than simply benefiting from a softer US dollar, suggesting the currency’s gains could be more sustainable.
An analysis by Bloomberg found that global macro factors such as shifts in risk appetite and movements in the US dollar accounted for only about a quarter of the ringgit’s roughly 12 per cent rise over the past 12 months, the strongest performance among Asian currencies.
Instead, the bulk of the rally has been underpinned by firm domestic factors, including stronger-than-expected economic 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 was closely linked to foreign direct investment, particularly into data centres, alongside solid growth momentum and the government’s 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.
Bloomberg’s 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 had far less influence on the ringgit than on currencies such as the Thai baht, Singapore dollar and Philippine peso.
Investor confidence in Malaysian assets has also strengthened as the trade-dependent economy remained resilient despite the imposition of 19 per cent US tariffs last year. Malaysia’s gross domestic product expanded by 5.7 per cent in the fourth quarter, lifting full-year growth above official projections.
Malaysia’s growing role in the artificial intelligence supply chain and its emergence as a regional hub for data centre development have further boosted its long-term growth prospects. Foreign investment across the 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.
Optimism surrounding the Johor-Singapore Special Economic Zone has also lifted sentiment. The government recently announced a series 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.
However, risks remain. Economic growth is expected to moderate to between 4 and 4.5 per cent in 2026, down from 4.9 per cent last year. HSBC has also warned that Malaysia’s bond market could be vulnerable if rising Japanese yields trigger capital repatriation.
Despite these concerns, major investment banks remain optimistic about the ringgit’s outlook. Goldman Sachs said strong technology exports, continued foreign investment and a steady monetary policy stance by Bank Negara Malaysia should continue to support the currency into 2026.
In a report published on Jan 23, Goldman Sachs 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, closing at 3.92 per dollar on Wednesday.
The return of foreign funds to Malaysian equities has further boosted sentiment, with overseas investors recording net inflows of nearly US$308 million (RM1.2 billion) so far this month, after net outflows exceeding US$5 billion last year.
