why is the Malaysian ring gate Rising so rapidly today I'll be answering this question with three key reasons and right to the Varian I'll be sh with you my verdict on whether this appreciation will continue or not so let's start with the first key reason why the malan ring is appreciating is that recently there's news that they are applying to join BR I if you see the chart over here you realize that Malaysian rate appreciated massively in end July 2024 while the timing may not fit exactly of the BR I news many speculators believe that it is a contributing reason for increased optimism techn again this is just an idea of application Malaysia is still not in BR I and maybe Traders are just front running that idea then the question becomes if Malaysia does need join BR I will there be more economic prosperity and better currency moving forward the answer unfortunately is no Egypt is one of the countries that recently joined BR I and as you can see this chart of USD versus Egyptian pound you would realize that US dollar has strengthened massively against it conversely it also means the Egyptian power has weakened tremendously especially in May 2024 that's even after it's been accepted into BR Egypt right now is facing massive devaluation in currency and the future trade with BR I members is not a silver bullet that can save its situation in any case it's widely accepted also that Vietnam Thailand and Philippines will also be interested in this application which means it's not going to be such a long-lasting positive effect my guess again is this is a temporary speculative game that would eventually fade similar to what happened when prime minister anir was appointed as Malaysia's PM back in November 2022 Malaysia rate also spectacularly Rose in the next one 2 months ahead and news headlines actually mentioned that the soaring ring gate after anas's appointment is not sustainable explain what sustains a currency strength in the long term the second key reason for Malaysian ring Gates appreciation is the widely accepted possibility of us fed cutting rates in the very near term as mentioned in this headline over here Asian currencies have hit a seven-month high on Goldilocks us scenario led by ring gate and War many are betting that the Federal Reserve for cut rates as early as September and it's not just ringed and War taibat for example has appreciated so what exactly is driving this forecast of Federal Reserve possibly cutting rates very soon back in start of August there was bad jobs report in us that very news suggested that recession risk would be increasing Goldman Sachs actually increased the possibility for 15 to 25% in that very news itself US dollar fell against Malaysia rate as well as many other currencies because there's this logic if there is a recession in US logically fed will cut rates even more aggressively than expected this 5.25% could come down significantly save to maybe 3% so this impacts two things specifically the first is something called interest rate differential right now if you see over here Malaysian ring gate actually pays an overnight interest of 3% if you compare that to us fed of 5.25% you would realize that it's logical cor to borrow ring gate and buy US dollar this move itself will make you a gain so similarly when there's expectation of Us 5.25% coming down Traders or investors will unwind that position very similar to unwinding Yen carry trade the second is that when US Federal Reserve Cuts USD starts to lose value what Global Investors will next look is towards Emerging Markets historically the direction of US dollar has been closely linked with the performance of emerging markets in fact this is a negative correlation during periods of prolonged USD strength emerging markets tend to underperform in periods of USD weakness Emerging Markets tend to outperform and the reason is because Global Investors will start to shift their focus to areas where there's possible growth this is probably the strongest Tailwind for more rate appreciation in the next few months ahead the third reason why the Malayan ring is appreciating is the recent strong GDP results of Malaysia this news in itself has brought the ring gate all the way up to 4.37 per us and 3.34 per syn dollar so why exactly does GDP impact the currency strength mention over here a lower than expected GDP means that an economy is not growing conversely a higher than expected GDP means that the economy is fast growing Malaysia's GDP actually accelerated to 5.9% in second quarter which is above analyst expectations ocbc for example has quickly re VIIs Malaysia's 2024 GDP forecast up to 5% from 4.2% for the year GDP is impacted by quite a few things mainly consumption Investments government spending and net exports we focus on the first and the last the first is actually on consumption what drove Malaysia's strong GDP numbers was strong household spending economists have mention that this has been boled by cash handouts that were given by the government Cuts in diesel subsidies festive spending and EPF withdrawals EPF is actually Malaysia's pension scheme and it's been recently restructured to allow early withdrawals the headline also reads that experts say a delicate balance is needed because if people withdraw from the pension scheme there's more spending now it looks good but in future that could become a national burden between the years of 2020 to 2022 8.1 million Malaysians took 145 billion ring out of retirement funds after the general election of November 2022 former Minister has even urged government to allow another round of EPF withdrawals for those in need however that has not been put through so household spending wise I think it's a temporary blip upwards then the other factor that impacts GDP is strong exports Malaysia's exports actually searched 12.3% in July which is the fastest space in nearly 2 years as mentioned Malaysia produces Commodities and electronics and makes shipments to advanc economies the biggest trade partner for Malaysia is China and even though that contracted in July deliveries to us Europe and Taiwan specifically for Semiconductor industry searched upwards if you are curious about top 10 exports for Malaysia this is the list at the very top Electronics is the main component followed by that are three commodi components petroleum LNG and palm oil if you were to take a deeper dive into the GDP you would see that Services has inched up that's because of better consumption which may be temporary but manufacturing and agriculture surging upwards seems to be a more sustainable contributor to GDP growth how well Malaysia does in GDP performance in the next few quarters ahead really depends on government's efforts to make its Industries more competitive in the long term Beyond just relying on a cheap currency Malaysia is able to export now because currency has dropped a lot but once currency starts to appreciate export comparativeness tends to tilt backwards many emerging economies rely on manufacturing and price competiveness sometimes that work is in favor sometimes that works against for this moment it is working in favor coming to here if you have learned something really smash the like button and let me share with you my verdict on where the Malaysian rate might Trend towards if we look in terms of of US dollar to ring gate the correction has been very rapid my verdict is that there's only probably 3 to 5% left in terms of further correction if any unless the US Federal Reserve Cuts interest rates beyond all imagination against the Sing dollar Malaysian rate right now stands at 3.34 maybe it could climb slightly bit more further to 3.25 or rather stick with the long-term Trend which is overtime you will depreciate further and that's why I think in the short term there should not be any formal feel of missing out to quickly Buy in Malayan ring gate let me know if you agree my verdict or not and as always thank you for watching right the very