Ringgit Strengthens Ahead of Malaysia's Q3 GDP Estimates

The Malaysian ringgit closed higher against a weaker US dollar, trading at 4.0800/4.0835 compared to the previous day's close of 4.0805/4.0850. This rise comes ahead of the anticipated release of Malaysia's third-quarter Gross Domestic Product (GDP) estimates, which are projected to show a growth rate of around 5.3%, slightly lower than earlier expectations of 5.2%, according to the Department of Statistics Malaysia (DOSM).

While the growth rate reflects a moderation from the 6.0% recorded in the preceding quarter, it remains a positive indicator of economic resilience, bolstered by sustained domestic demand and investment activities. The services sector emerged as the main growth driver, expanding by 5.4%, supported by wholesale and retail trade, information and communications, and financial and insurance activities. In contrast, the mining and quarrying sector faced a significant contraction of 4.9%, which weighed down the overall performance, highlighting a divergence in sectoral growth.

Afzanizam Rashid, chief economist at Bank Muamalat Malaysia Bhd, noted that despite the slowdown, the economy is expected to remain robust, strengthening the case for further normalization of the overnight policy rate (OPR) towards 3%. He emphasized that monetary policy settings should align with the economy’s underlying strength and evolving inflationary pressures.

In contrast to the optimistic tone surrounding domestic demand, Malaysian outlets like Malay Mail pointed out the specific challenges posed by the mining sector's decline, which contrasts with the overall positive growth in manufacturing, which strengthened to 7.5% from 7.3% in the second quarter. This manufacturing growth was driven by export-oriented industries, particularly in electrical, electronic, and optical products.

Despite the positive outlook for Malaysia, the US Dollar Index (DXY) has declined unexpectedly, even in the face of higher-than-expected inflation figures in the United States. The Consumer Price Index (CPI) for September is reported to have risen to 3.7%, up from 3.4% in August, surpassing market expectations of 3.6%. This inflationary pressure has led to a decrease in the 10-year US Treasury yield, which fell by 10 basis points to 5.09%, reflecting increased demand for safe-haven assets amid a sell-off in technology stocks, particularly those related to artificial intelligence (AI).

Afzanizam explained that concerns over stretched valuations and rising financing costs in the AI sector appear to have prompted investors to reassess US growth prospects. He also said that cautious remarks from Federal Reserve officials have tempered expectations for an imminent interest rate hike, further contributing to the US dollar's weakness.

“The continued above-trend economic growth strengthens the case for further normalization of the overnight policy rate (OPR) towards 3%.”Afzanizam Rashid, Chief Economist at Bank Muamalat Malaysia Bhd

In the currency market, the ringgit traded lower against a basket of major currencies. It eased against the Japanese yen to 2.5869/2.5892 from 2.5751/2.5781 at the previous close, decreased against the euro to 4.5761/4.5801 from 4.5673/4.5723, and inched up against the British pound to 5.4101/5.4147 from 5.4132/5.4192. Within the ASEAN region, the local currency gained against the Indonesian rupiah to 227.4/227.7 from 227.9/228.2 and edged up against the Philippine peso to 6.47/6.48 from 6.50/6.51. It rose against the Singapore dollar to 3.1818/3.1848 from 3.1829/3.1267 at the previous close, but was lower against the Thai baht at 12.1758/12.1914 from 12.1498/12.1672.

Looking ahead, analysts from RHB Investment Bank have projected that Malaysia's GDP growth for 2026 will be around 5.4%, driven by strong domestic demand and robust trade performance. They said the economy is expected to maintain momentum despite ongoing external pressures, supported by positive indicators in high-frequency economic data, particularly in exports and industrial production.

RHB's report noted that the services and construction sectors are likely to benefit from sustained domestic demand and ongoing investment, while the manufacturing sector remains on a positive trajectory, bolstered by resilient domestic demand and ongoing global demand for electrical and electronic products.