The US dollar-ringgit exchange rate is expected to fall below the 4.00 level in 2025, according to a revised projection by MIDF Research. The research house also predicts that the ringgit could reach RM4.03 against the greenback by the end of 2024, driven by positive economic conditions and continued interest rate cuts in the United States.
Ringgit Set to Strengthen in 4Q24
MIDF Research anticipates that the ringgit will appreciate further in Q4 2024, attributing this outlook to the US Federal Reserve’s policy easing. The Fed’s interest rate cuts are expected to trigger capital inflows into emerging markets, including Malaysia, as investors seek better returns in light of the declining US dollar.
“With the overnight policy rate (OPR) expected to remain unchanged in Malaysia, the narrowing interest rate differentials between the US and Malaysia will support the ringgit’s continued appreciation,” MIDF Research explained in its latest report.
Positive Outlook for Malaysia’s Equity Market
Alongside a stronger ringgit, MIDF Research also expects Malaysia’s equity market to maintain its positive momentum in Q4 2024, fueled by foreign fund inflows, robust economic growth, and strong corporate earnings prospects.
The research house has maintained its FBM KLCI target at 1,750 points for end-2024, while setting a preliminary target of 1,850 points for 2025. This forecast is based on an optimistic outlook for Malaysia’s economy, which is projected to grow by 4.6% in 2025, driven by resilient macroeconomic fundamentals.
Preferred Sectors for 4Q24
As interest rates soften, MIDF Research expects investors to shift toward sectors that offer good dividend yields and have potential to recover from underperformance. The following sectors are highlighted as top picks for 4Q24:
- Banking: Banks are expected to continue delivering attractive dividends, and recent regional re-ratings have improved share price performance in Q3 2024.
- Real Estate Investment Trusts (REITs): With the dividend yield-Malaysian Government Securities (MGS) spread widening, REITs are becoming more appealing to yield-seeking investors.
- Consumer Sector: Positioned as a potential laggard play, the consumer sector could see renewed investor interest as the market stabilizes.
No Negative Outlook for Any Sector
MIDF Research remains broadly positive on all sectors, noting that it does not foresee any significant downturns in any particular industry for Q4 2024.
Ringgit Performance Outlook for 2025
Looking into 2025, MIDF Research forecasts that the ringgit will continue to strengthen, potentially reaching below RM4.00 per USD. The anticipated Federal Reserve rate cuts and Malaysia’s stable overnight policy rate are expected to drive this appreciation.
In addition, the Malaysian economy is projected to remain healthy with an expected 8.6% year-on-year growth in FBM KLCI earnings for 2025. This growth will likely support continued interest from investors, both domestic and foreign.
MIDF Research’s revised projections paint a promising picture for the ringgit and the broader Malaysian economy as both monetary policies and economic fundamentals align in its favor. With expectations of further US interest rate cuts and a robust domestic economy, 2025 looks set to be a positive year for the ringgit, equity markets, and key sectors.
