Ringgit Softens Against Dollar Following Fed Rate Hike

The ringgit opened lower against the US dollar on Thursday morning, trading at 4.0855/4.0910 compared to Tuesday’s close of 4.0835/4.0880, as the greenback surged following a hawkish policy shift from the US Federal Open Market Committee (FOMC).

According to the original publisher, the US Federal Reserve raised its benchmark interest rate by 25 basis points, moving to a target range of 3.75% to 4.00%. This decision, which marks the first rate hike since 2023, exceeded previous market forecasts of 3.50% to 3.75%. The move prompted an immediate rally in the US dollar, with the US dollar index (DXY) climbing to 100.322 points.

Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid noted that the FOMC’s decision was marked by a high degree of hawkishness, signaling that the Federal Reserve remains firmly focused on curbing inflation to achieve price stability. During his press conference, the Fed chair signaled that a more restrictive monetary policy stance would be maintained for the foreseeable future.

The broader market impact was immediate, with US Treasury yields rising as investors recalibrated their portfolios. The two-year US Treasury yield climbed seven basis points to 4.74%, while the ten-year yield rose two basis points to 5.02%. Bank Muamalat expects the ringgit to oscillate between 4.08 and 4.10 against the US dollar for the remainder of the trading session.

For the average Malaysian consumer, this shift in global monetary policy creates a challenging environment. A stronger US dollar generally increases the cost of imported goods, which could eventually filter through to consumer prices. While Malaysia’s headline inflation recently sat at a moderate 1.8% as of July 2026, a sustained depreciation of the ringgit could apply upward pressure on the cost of living, particularly for imported food items and technology components.

Local SMEs and businesses with dollar-denominated debt will likely feel the pressure first, as the cost of servicing these liabilities increases. Conversely, exporters stand to benefit from the current exchange rate, though this advantage is often tempered by the rising cost of raw materials and inputs sourced from abroad. For investors, the interest rate differential between the US and Malaysia may also drive capital flows, potentially leading to volatility in the local equity and bond markets.

These developments occur against a backdrop of domestic economic resilience, with Malaysia recording a 6.0% year-on-year real GDP growth in the latest quarter and an unemployment rate of 3.0%. These solid fundamentals provide some buffer against external shocks, but policymakers will need to balance the need for growth against the risk of imported inflation caused by the currency’s performance.

Looking ahead, the market will be closely monitoring the Federal Reserve’s future commentary. The quarterly projections released by Fed staff indicate that at least one more quarter-point rate hike is anticipated before the end of the year. This suggests that the pressure on the ringgit may persist as long as the Fed remains committed to its current tightening cycle.

It remains to be seen whether these hawkish sentiments will be dampened by upcoming US labor market data or shifts in domestic inflation levels. Until the Fed signals a pause in its rate-hiking trajectory, the ringgit is likely to remain sensitive to fluctuations in US economic data and global market sentiment.