SINGAPORE (Nov 17): The Malaysian ringgit (MYR) on Wednesday reached a one-year high against the USD at 4.1745. And due to encouraging domestic and external factors, economists expect the MYR to remain strong.

Uncertainty over the US Republican party’s tax bill has caused the USD to weaken, partly contributing to the ringgit’s strength, says RHB Research Institute.

RHB Research adds that this may also be due to hawkish statement by Malaysia’s central bank, Bank Negara Malaysia (BNM), on Nov 8 from its monetary policy statement and expectations of a wider current account surplus recorded in 3Q17.

“Looking forward, we expect the ringgit to recover gradually over time as the Malaysian economy is expected to grow at a sustained pace,” says RHB Research.

On Nov 9, BNM maintained the MYR overnight policy rate at 3% at the Monetary Policy Meeting.

In a statement, BNM says that “given the strength of the global and domestic macroeconomic conditions, the monetary policy committee may consider reviewing the current degree of monetary accommodation to ensure the sustainability of the growth prospects of the Malaysian economy.”

Following the release of the statement, MYR appreciated by as much as 0.7% from 4.2065.

Alan Tan, chief economist of AffinHwang Investment Bank told The Edge Financial Daily that the MYR will depend on a combination of strong domestic and external factors to remain strong.

Judging by the positive economic fundamentals, Tan expects Malaysia’s 3Q17 gross domestic product (GDP) to come in at 6% and for the full-year GDP growth to be at the upper end of the official forecast of 5.7%.

“On top of that, the [US] dollar’s weakness has stemmed from economists’ expectations that the effect from [US President] Donald Trump’s policy, in particular his tax reforms, would only be felt in the later part of 2018 going into 2019… With that in mind, the [US] dollar’s strength which many expected failed to materialise,” says Tan.

Furthermore, Trump on Nov 2 selected Jerome Powell to replace Janet Yellen as the chairman of the Federal Reserve (Fed).

See: Trump selects Powell for Fed Chairman, replacing Yellen

This move has sent a message that the Fed would continue with an “easy” monetary policy and gradual interest hike.

According to Tan, Powell is expected to follow Yellen’s guidance on a gradual increase in interest rates, and this has contributed to a stronger MYR compared to USD.

Meanwhile, Kamaruddin Md Nor, chief economist at MIDF Amanah Investment Bank says that he is cautiously optimistic about MYR’s near-term direction as he believes the currency’s performance is not just driven by BNM’s statement and positive macroeconomic indicators, but also a recent rally in terms of Brent crude oil.

According to Md Nor, Brent crude oil has historically had a positive correlation with the ringgit. And Malaysia would typically benefit as it is an exporter of crude oil.