Currency depreciation can occur due to factors such as economic fundamentals (Trade Balance, Money Supply), interest rate differentials, political instability, or risk aversion among investors.

Malaysia has a good trade surplus, supported by the strong export of E&E products, energy, and palm oil, hence this is not the reason for the weak Ringgit. A weak Ringgit could even boost the competitiveness of Malaysia's export.

M2 is a measurement of the money supply. From the chart below, you can see Malaysia has been printing money faster than the growth of Malaysia's GDP. The M2/GDP ratio is a measurement of how much money is needed to create a single dollar of GDP. Turns out that we need a lot of money just to create a single dollar of GDP and the situation worsened during the pandemic.

Source: Malaysia M2 stats

Interest rate differential is also an important factor. Malaysia Central Bank has not shown any intention of raising Malaysia's interest rate when the rest of the world is actively increasing their central bank rate. When a US bank is offering a 3% return for 1 year Fixed Deposit while Malaysia bank is only offering a 1.75% return for 1 year Fixed Deposit, it is obvious that funds would flow out from Malaysia, dragging the value of the Ringgit.

Political instability is another major factor for foreign investors' confidence. The MOU signed between the opposition party and the ruling party is going to end on 31 July 2022. Unless a general election is held prior to that date, otherwise Malaysia's policy consistency could be in doubt.

Risk aversion among investors. Previously, investors are so bullish on everything and investors will take on a higher risk to bet for a higher return. The sentiment has turned around and capital preservation has become the main goal now. Malaysia, which is a developing nation has been categorized as a risky asset, which is shunned by foreign investors.

One thing to take note of is the strong SGD. Singapore has been taking over the position of Hong Kong. The zero covid policy in China is making China citizens nervous and they are actively looking for ways to move out their money or leave the country. Singapore is a great destination for them. Once the lockdown is lifted in China, more funds will flow out from China into Singapore.