What drove the Malaysian ringgit to its highest in more than five weeks?

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Malaysian Ringgit Reaches Over Five-Week High Driven by Investor Expectations of Modest US Federal Reserve Stimulus Reduction

The Malaysian ringgit surged to its strongest level in over five weeks on September 18, primarily propelled by investor confidence that the US Federal Reserve would implement only a minor reduction in its monetary stimulus measures later that day. This upward momentum was further supported by significant demand from real money funds, which are investment vehicles typically managing substantial assets. The currency's advance saw it reach 3.2300 against the US dollar, marking its highest point since August 12.
Investor Bets on Limited Fed Tapering

Market participants anticipated that the Federal Reserve, following its two-day policy meeting, would announce a reduction of US$10 billion from its US$85 billion monthly bond-buying program. This expectation of a modest adjustment, rather than a more aggressive cut, underpinned the positive sentiment towards emerging Asian currencies, including the ringgit. Recent weaker-than-expected economic data from the United States had led investors to believe the Fed might proceed with a less substantial tapering of quantitative easing than initially feared.
Demand from Real Money Funds

The ringgit experienced a notable increase in value, climbing as much as 0.6 per cent to reach 3.2300 against the US dollar. This appreciation was directly attributed to buying interest from real money funds. These types of funds often invest based on fundamental economic analysis and long-term trends, and their demand signals a strong conviction in the currency's underlying strength or potential for appreciation.
Market Pricing of Fed Action

Traders in the currency market indicated that the current levels of the Malaysian ringgit had already incorporated a degree of the anticipated Federal Reserve stimulus reduction. This suggests that the market had, to some extent, "priced in" the expected tapering, meaning that the actual announcement, if it aligned with these expectations, would not necessarily trigger a significant new wave of selling pressure on the ringgit. The possibility of the Fed maintaining dovish rhetoric to keep yields low was also a factor influencing currency movements.

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What drove the Malaysian ringgit to its highest in more than five weeks?

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