Ringgit leads drop in emerging market currencies as oil prices fall

Ringgit leads drop in emerging market currencies as oil prices fall

Malaysia's ringgit led a drop in emerging market currencies as oil prices resumed their fall after Iran's oil minister ridiculed a plan by Russia and Saudi Arabia to freeze production at January levels.

The ringgit weakened to RM3.0031 to the Singapore dollar, a level last seen in late January, and is down 0.7 per cent from RM2.9832 on Tuesday as lower crude prices dimmed prospects for Malaysia, Asia's only major net oil exporter.

"That, combined with data showing Malaysian inflation is picking up, and an expected reduction in government expenditure, will have negative impact on Malaysian growth for the first half of the year. That will weigh on the ringgit," said Mr Khoon Goh, a senior currency strategist at ANZ in Singapore.

Meanwhile, Britain's pound slid for a third day, touching 1.9568 Singdollars, its lowest level since June 2013. London Mayor Boris Johnson, one of the nation's most popular politicians, sparked the slide after declaring on Sunday that he will campaign for Britain to exit the European Union in a June referendum. It is down 2.7 per cent from Friday.

Singapore Business Federation chief executive Ho Meng Kit said that any short-term negative effect from the pound's depreciation on the competitiveness of Singapore companies may be minimal.

"In general, local companies that import goods and services from Britain stand to benefit from a weak pound. Conversely, companies that export to Britain and/or compete with British companies may be negatively impacted in the short to medium term," he said. "To offset risks, companies with large foreign currency transactions would usually engage in hedging activities."

He said Singapore has strong links with Britain in the aerospace and petrochemical clusters. While the pound's drop may be transitional, he advised businesses with British trade ties to monitor political developments.

For others, the pound's latest drop, while not as dramatic as its plunge during the global financial crisis, still represents a good opportunity to start accumulating pounds.

Mr Brian Tan, a partner at a local asset management firm whose family is based in London, said those with children studying in Britain should start buying pounds now, especially as the Singdollar is set to weaken in the coming months.

"This is a relatively small drop, compared to the time when £1 fetched $3.07 in (June) 2007, and then dropped to $2.09 in (December) 2008, which made studying in the UK dramatically cheaper. But the cost of living in London has since gone up because of the rise in real estate prices. Still, the pound's drop is a good buying opportunity," he said.

Mr Goh said the pound is expected to "trade poorly as it continues to swing on how the voting will go. The speed at which the pound is being sold, it could touch $1.90 in the coming months".


This article was first published on February 25, 2016.
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