Key Points
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A stronger growth outlook, improving trade dynamics, widening external buffers, and supportive FX flows underpin our view that USDMYR remains biased lower, with further ringgit gains likely as the macro and external backdrop continues to improve.
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Ringgit remains a regional outperformer, up 4.3% year to date and currently consolidating its gains below the 3.9000 level vs the US dollar. A break below the 3.8800 support level could extend ringgit gains to around the 3.8500 level, our current end-Q1 forecast, a level that is last seen in early 2018. This will be supported by improving macro fundamentals and external buffers.
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Malaysia’s domestic growth outlook has strengthened, prompting us to revise up our 2026 GDP forecast to 4.9%yoy (from 4.5% previously). This upward revision mainly reflects a strong Q4 GDP print, sustained momentum in investment and exports, and a lower US tariff rate on Malaysia.
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On growth, Malaysia’s Q4 GDP surprised to the upside at 6.3%yoy, driven by resilient domestic demand and firm export activity. Fixed investment contributed 1.9ppt to year-on-year GDP growth, below the Q324 peak of 3ppt, but still well above pre-Covid average of 0.5pp, underscoring the country’s ongoing investment upcycle. Private consumption added 3.1ppt and government spending 1.3ppt, while net exports subtracted 2.3ppt, largely reflecting strong import demand linked to capital spending. Q425 data shows machinery imports increasing 5.8%yoy and industrial production up by 5%yoy, signalling that the investment-led growth could continue into this year.
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External developments are turning more supportive for Malaysia’s exports. The US Supreme Court has struck down Trump’s reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA). Trump responded by announcing a 15% global tariff under Section 122, which will last for 150 days, implying a reduction from Malaysia’s earlier 19% headline US reciprocal tariff rate. Assuming a trade elasticity of 0.7 and taking account of exports previously exempt from reciprocal tariffs, we estimate this could provide a 0.1-0.2ppt uplift to Malaysia’s 2026 GDP growth. This also comes as the US share of Malaysia’s exports has risen to 16.4% in January, from ~15.3% at end‑2025, amplifying the growth and FX impact.
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Malaysia’s external buffers continue to strengthen. The trade surplus widened to MYR22.1bn in January, from MYR19.3bn a year ago, driven primarily by electrical & electronics (MYR22.1bn) and palm oil products (MYR7.0bn). Re‑exports have surged sharply (+51.5%yoy in January), sustaining the strong transhipment momentum seen since the post‑Liberation Day, and highlighting Malaysia’s role as a regional manufacturing and logistics hub. Foreign reserves also rose further to US$127.9bn (as of 13 Feb), from US$126.9bn as of end-January, reinforcing confidence in Malaysia’s external position.
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FX and government bond inflows have been closely correlated since 2024. An upcoming government auction to sell MYR5bn 5-year MGS at a coupon rate of 4.232% could provide opportunity for foreign inflows. Average yield is estimated around 3.29%. Malaysia’s contained inflation outlook, fiscal consolidation, and prospects for further ringgit appreciation, could help anchor bond yields.
