How might US Federal Reserve interest rate cut signals impact the ringgit?

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US Federal Reserve Interest Rate Cut Signals Could Strengthen the Ringgit

The Malaysian ringgit is anticipated to experience further appreciation against the US dollar in the coming week, primarily influenced by signals from the US Federal Reserve (Fed) indicating a potential interest rate cut in September. This outlook is supported by expectations of continued capital inflows into Malaysia, driven by a robust domestic economic outlook, a slowdown in the US economy, and the possibility of global monetary easing.
Fed's Dovish Stance and Potential Rate Cuts

Federal Reserve chairman Jerome Powell has provided a clear indication that the long-awaited US interest rate cut is likely to occur in September. This dovish tone, coupled with mounting evidence of a slowing US economy and cooling inflation, is expected to put downward pressure on the US dollar index, potentially keeping it around the 101.0 level. The June PCE inflation data, which showed headline and core figures easing to 2.5 per cent and 2.6 per cent respectively, further supports this sentiment.
Expected Ringgit Performance and Trading Range

Chief economist at Bank Muamalat Malaysia Bhd, Dr Mohd Afzanizam Abdul Rashid, projects that the ringgit could gradually appreciate. He suggests a potential trading range for the local currency between RM4.3650 and RM4.3750 against the US dollar in the upcoming week. This forecast aligns with the broader expectation of a weakening US dollar.
Key Economic Data to Monitor

Market participants will be closely observing the US Personal Consumption Expenditure (PCE) Price Index for July, both headline and core figures, next week. This crucial economic data will offer further insights into the direction of the US dollar. The Fed's data-driven approach means that these upcoming releases will be significant in shaping market expectations regarding the timing and magnitude of future rate adjustments.
Recent Ringgit Strength and Year-to-Date Performance

The ringgit has already demonstrated notable strength, reaching an 18-month high of RM4.3805 against the US dollar on August 19, driven by concerns over potential US interest rate cuts. Year-to-date, the ringgit has appreciated by a significant 5.01 per cent against the US dollar. On a week-on-week basis, the ringgit strengthened to 4.3720/3775 against the US dollar from 4.4295/4350 in the preceding week.

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How might US Federal Reserve interest rate cut signals impact the ringgit?

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