KUALA LUMPUR: The move by US President Donald Trump to possibly announce a new Federal Reserve (Fed) chairman early has shaken global markets and raised expectations of a weaker US dollar, boosting prospects for the ringgit.
UOB Kay Hian Wealth Advisors Sdn Bhd's head of investment research Mohd Sedek Jantan said the possibility of a Fed chairman who favours faster rate cuts could place downward pressure on the US dollar, thereby supporting the ringgit.
He added that the ringgit is trading now around 4.23 to the US dollar and is backed by Malaysia's strong macroeconomic fundamentals, including consistent inflows from government-linked institutions and a more liberal foreign exchange regime.
"A stronger ringgit would increase Malaysia's import purchasing power and potentially draw more foreign capital into domestic bond and equity markets.
"However, it could also challenge the price competitiveness of Malaysian exports, especially those still facing US tariffs, by making them more expensive in the American market.
"In this environment, Bank Negara Malaysia's (BNM) flexible exchange rate framework will be instrumental in cushioning any adverse impact on export performance and maintaining external stability," he told Business Times.
Mohd Sedek noted that Trump has been vocal in his criticism of current Fed chairman Jerome Powell, particularly over what he sees as delayed interest rate cuts.
He said any new appointee is expected to align more closely with Trump's economic preferences, favouring earlier and more aggressive rate reductions to mitigate inflationary pressures stemming from his trade policies—especially reciprocal tariffs, currently paused until July 9.
"These tariffs have played a role in the Fed's more cautious stance on policy easing.
"I believe that the growing expectation of rate cuts by the Fed in the second half of 2025 (2H25) remains a key catalyst for global markets, including Malaysia," he said.
On how it will affect stock market dynamics, Mohd Sedek said the outlook for global equities remains positive amid anticipated US rate cuts, as lower borrowing costs generally support investment and valuation growth.
He said in the short term, global markets may increasingly reflect alignment with Trump's policy approach.
He added that for Malaysia, this could translate into improved investor sentiment and greater capital flows.
"However, the shadow of the 24 per cent reciprocal US tariffs on Malaysian exports despite their temporary suspension continues to weigh on confidence in export-dependent sectors.
"That said, Malaysia remains actively engaged in negotiations with the US trade team.
"While the outcome remains uncertain, we should remain optimistic that our delegation can secure more favourable terms potentially reducing the tariff to a level lower than the current 24 per cent.
"A successful renegotiation would not only support Malaysia's export outlook but also help restore investor confidence," he said.
Mohd Sedek also said that easing US monetary policy would likely enhance global liquidity and lower capital costs.
This, he added, could fuel greater investment into technology and digital infrastructure worldwide, sustaining or even boosting demand for Malaysian semiconductor exports.
"This positions Malaysia to ride on the upswing of global tech spending and maintain resilience in a complex trade environment," he noted.
Similarly, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that the appointment of a more dovish chairman could lead to aggressive interest rate cuts, potentially weakening the US dollar and subsequently strengthening the ringgit.
He noted that Trump has been persistent in calling for monetary easing by the Fed.
However, he said this is a tall order, as the Fed is meant to operate independently in making monetary policy decisions.
He added that Powell's term will expire in May next year, and any new chairman must be confirmed by the US Senate.
"For now, this whole situation remains mere rhetoric, as there has been no official move or concrete indication that the Fed will bow to political pressure or that a nomination is imminent," he said.
Nevertheless, Afzanizam noted that the US dollar has been relatively soft despite heightened economic uncertainties.
He said this is rather unusual, as the dollar would normally appreciate when there are concerns over geopolitical risks and economic shocks.
"Thus far, emerging market currencies including ringgit have performed well.
"I suppose such a trajectory may continue should the rates cut more than expected by the markets," he said.
On June 25, The Wall Street Journal reported that Trump is considering naming a successor to Powell well ahead of the end of Powell's term.
This would mark a significant break from tradition and could give the administration an opportunity to influence investor expectations surrounding monetary policy.
According to the report, Trump has discussed making the announcement as early as September or October, with some aides suggesting an even earlier timeline.
Two people close to the administration said Trump has narrowed the field to three or four candidates and may reveal his choice soon.
The Wall Street Journal noted that Trump's frustration with the Fed's cautious approach to interest rate cuts is prompting this unconventional move.
His strategy appears to reflect a broader desire to appoint a Fed chairman who supports his pro-growth agenda.
Following the report, the US dollar fell to a three-year low.
Trump has repeatedly clashed with Powell, most recently calling him "very dumb" on Tuesday, as he continues to criticise the central bank for being too slow in cutting interest rates.
Powell's term as chairman is due to run for another 11 months, until next May, and the announcement of a successor traditionally comes three or four months in advance.