The Malaysian currency has been battered by continued strengthening of the US dollar and low oil prices, but analysts also say that recent uncertainty in bond markets and fiscal budget issues have added to the downward pressure.
SINGAPORE: The Malaysian ringgit has been under pressure in recent months, hurt by weak commodity prices and a strengthening US dollar. Analysts said the trend may continue, with additional factors such as movements in bond markets and uncertainty about the country’s fiscal budget weighing on sentiment. However, they also noted that volatility in the ringgit has been due more to market adjustments rather than a crisis-style sell-off.
Singaporeans are looking to take advantage of a sliding ringgit, which has been trading near all-time lows against the Singapore dollar. In Thursday (Jun 11) trade, the ringgit was trading at 2.78 to the Singapore dollar. The Malaysian currency has been battered by continued strengthening of the US dollar and low oil prices. But analysts also said that recent uncertainty in bond markets and fiscal budget issues have added to the downward pressure.
“In my view, domestic issues in terms of political uncertainty and also a bit of issues in the contingent liabilities side of things, which creates a bit uncertainty largely through the bond market – because Malaysia has a significant proportion of foreign ownership of the bonds,” said Maybank’s head of FX Research, Mr Saktiandi Supaat. He added: “The MGS, which is the Malaysian Government Securities, and any significant shifts in that sentiment would affect the bond flows in general. That significantly shifts the ringgit volatility to some extent toward the weaker side.”
ECONOMIC CONDITIONS TODAY STABLE: EXPERTS
The ringgit is hovering around 3.75 to the greenback – just a touch away from 3.8 – where it was pegged against the dollar during the Asian crisis. While the peg has since been removed, forex experts said that even if macro-conditions push the ringgit down to 3.8 against the dollar, it should not create too much concern. They pointed out that economic conditions today, while muted, are stable and nowhere near a crisis situation. Said Mr Sim Moh Siong, director and FX strategist at the Bank of Singapore: “If you look beyond the ringgit slide, the financial conditions in Malaysia today are much more supportive compared to what we have seen in the Asian Financial Crisis.
“So there is no crisis in today’s context, compared to the situation then. I mean, 3.8 is often cited as the peg level, which one should look at and probably is a key psychological level. But I think so far, the ringgit depreciation and the financial conditions have been quite orderly.” The ringgit has also been sliding against the Singapore dollar, which remains resilient against its regional counterparts.Analysts said they expect the Malaysian unit to stay around 2.7 against the Singapore dollar near year-end, but in the near term, it could possibly overshoot and breach the 2.8 level.