Sure, there is an exchange loss.

But long term, it is a good alternative. Rather you put your all money into ringgit FD which only yield 3.7% (might as well go lower in the future), you can set aside a portion unused money (that tends for FD rather han stock or unit trust) into some foreign currency that yield better also protect against ringgit depreciation. In longer term like 5-10 years time, the extra 2-3% will mean a lot.

But among the foreign currency, USD is least peferable since USD is on long term bearish trend due to huge current account deficit.

But you needs to at least monitor the invested currency, their country economy etc in order not to loss track on it.

Possible, but the chance and degree of ringgit being attacked is more than like Euro, AUD or SGD being attacked, people with plenty of 97 crisis experience will know. That's why BNM reluctantly to internationalise the Ringgit. Still Ringgit is untradable in overseas until now.

Although Ringgit current is appreciating, it mainly appreciating against USD, others actually not, if compared to AUD or Euro, Ringgit actually is depreciating.

It is no harm done to diversify your asset.

The total return = % interest + capital appreciation/depreciation

For long term the differential of 2-3% is huge, if you mean for short term then not so wise.
Also for someone intends to save the money for their children's future education in overseas like Australia, save the money into AUD FD is also hedge/protect against Ringgit depreciation in the future. I knew PBB not allow to withdraw it as foreign currency when the FD mature but some foreign banks allow you to withdraw as foregin currency and remit it to overseas for your children to reduce the exchange loss commission.

For exchange loss normally 1-3%, it depends and can negotiate lower with the banks if the amount is big. But if the particualr currency is the way up then the 1-2% charge seems like not significant can easily be covered by the appreciation.

But bare in mind, you can also suffer loss if the currency drop just like USD at the moment. The 5% interest in not enough to offset the capital depreciation.

Yup, NZD is a bit high risk at the moment, also due to a lot of Yen carry trade which if unwinding could affect the NZD a lot.
Interest rate movement is depends on the particular country economy, inflation and policy strategy. NZD interest rate in near peak with current economy situation but whether it will lower or not, it depends on their economy performance and central banks normally making decision on interest rate depends on economy data from time to time.

Future is a difficult guess game, cannot say surely lose money or make money. Investment always carried more and less some risk.

It is always good for to diversify your asset or portfolio. Prior to 1997 crisis, less people are aware the currency depreciation actually can hurt quite a lot.

The foreign currency FD has been around 2-3 years after BNM starting to liberalise the banking industry.