The recent rally in the Malaysian Ringgit is seen by market analysts as a temporary reprieve rather than an ongoing recovery in the currency.

The Ringgit was just one of two Asian currencies to register gains against the Dollar during this quarter. However, forecasts for the Ringgit are still low as growth fears in China – Malaysia’s largest trading partner – and a large interest rate gap with the US continue to weigh, Bloomberg reports.

“The third quarter has revealed some relief factors - passing state elections and China stepping up on stimulus. While the Ringgit need not be staring down a cliff, it is premature to suggest it is out of the woods,” said the head of economics & strategy at Mizuho Bank Ltd. in Singapore.

Malaysia’s currency is still vulnerable to certain factors, including a steep correction in oil prices in case of a global downturn, ongoing political tensions and a rough China recovery, Varathan added.

“The Ringgit outperformance seems to be driven by improving export conversion ratio. But this could be temporary, and the performance ranking may slip given the drag from still wide unfavourable interest rate differential vis-a-vis the Dollar and lingering Yuan depreciation pressures,” according to Moh Siong Sim, FX Strategist at Bank of Singapore Ltd.

The Ringgit is forecast to edge down to between 4.68-4.73 per Dollar in the near term, Varathan stated.

Furthermore, ongoing weakness in the Yuan, fuelled by fears over China’s economic outlook, continues to make an impact. So far this year, the Ringgit is emerging as Asia’s worst-performing currency with a 5.2% loss, followed by the onshore Yuan, which has declined 5.1% this year

“The Ringgit remains highly sensitive to the Yuan and will be eyeing it for direction. The measures announced by China to support investor confidence are incrementally positive to aid short-term sentiment on the Yuan, but we think that more effective fiscal stimulus is still likely needed to durably stabilise the currency,” Bank of Singapore’s Sim added.