(Photo by Patrick Goh/The Edge)

KUALA LUMPUR (Aug 5): The ringgit climbed by as much as 2.28% — its biggest gain against the US dollar in a single day since October 2015 — making it one of the best performing currencies in Asia year to date.

The local currency also reached 4.4250 against the greenback at the time of writing on Monday, marking its strongest level since April 2023.

Some forex analysts expect the ringgit to gain further strength in the near term.

“We turned constructive on the ringgit in March and believe gains could persist in the near term, as net foreign exchange inflows rise,” CIMB Treasury & Market Research said in a research note.

Its optimism hinges on the recovery in Malaysia’s electrical and electronics exports, which will bring in more foreign currency-denominated income to the country.

The bank believes that the appetite to hold the greenback would not be as strong moving forward, expecting Malaysian exporters to convert more of their foreign-currency earnings into the ringgit. This will lend support to the local currency.

“(Another factor) helping translate this into ringgit gains are moderating US dollar preferences due to shrinking yield differentials between the US and Malaysia,” the bank commented in the note dated Aug 5.

In addition, CIMB noted that the coordinated encouragement of flexible two-way flows that promotes easy movement of funds in and out of the country will also make exporters and resident investors be more willing to hold the ringgit.

“As of end-June, onshore business foreign currency deposits are estimated to have ‘excess’ unconverted proceeds of US$4.6 billion (RM20.36 billion) to US$6.8 billion compared to the pre-Fed tightening trend," it said. If converted, this would provide another boost to the ringgit.

In addition, CIMB noted that non-resident holdings in government bonds were 21.7% (compared with 25.2% in December 2019), and in equity markets, they were 19.6% (compared with 22.3% in December 2019).

“The combination of front-loaded US rate cuts, export and foreign direct investment prospects, the unwinding of long US dollar (positions) and normalising bond/equity non-resident exposure, presents a case for USD/MYR to overshoot our fair value of 4.30,” CIMB added.

Separately, UOB Global Economics & Markets Research said despite the greenback being heavily sold off (oversold), the strong downward movement suggests that this selling trend is not over yet.

The impulsive downward momentum, coupled with the consideration that the next significant support is some way off, at 4.3800, suggests the weakening of the US dollar is likely to continue, UOB said.

"That said, the 4.3800 is unlikely to come under threat this week (there is another support at 4.4000). On the upside, resistance levels are at 4.4550 and 4.4850," the research house said.

Over the past month, the ringgit has appreciated by 6.2% against the US dollar. It has recovered 7.79% from its low of 4.7987 touched on Feb 20 this year.

Year to date, the ringgit is up 3.64%. In comparison, some of its regional peers the Taiwanese dollar is down 6.09%, followed by Indonesian rupiah (down 4.82%), Philippine peso (down 4.25%), Thai baht (down 3.18%), Chinese renminbi (down 0.54%), and Singapore dollar (down 0.23%). The only regional peer that showed appreciation against the greenback is the Hong Kong dollar, which rose 0.45%.