Ringgit among best performing Asian currencies

PETALING JAYA - A combination of yuan appreciation, crude oil prices coming off their lows and shrinking likelihood of US interest rate hike this year contributed to the rise of the ringgit as one of the best performing Asian currencies.

With foreign capital returning to emerging Asian markets in search of higher yields, the ringgit gained 0.97 per cent to close at 4.1310 against the US dollar.

This was in line with the rebound in Malaysia's equity market, which saw its benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) rising 0.38 per cent yesterday to close at 1,649.96, off an early high of 1,661.34, even as the country's bond market continued to attract foreign inflows over the last five months.

Year-to-date, the Malaysian currency has gained about 4 per cent against the greenback, making it the top performing currency in Asia, excluding Japan. This was in contrast to the ringgit being the worst performer in the region last year.

According to economists, the strengthening of the ringgit yesterday was in tandem with the rebound in regional capital markets, as the risk of China devaluing its currency eased and crude oil prices remained steady in recent days.

Working in the ringgit's favour, they noted, was also the weakening of the US dollar, which was driven by a downgrade in market expectations over the pace of future interest rate hikes in the world's largest economy.

"The recent strengthening of the ringgit is a result of China's currency move, as much as it is a reflection of the improvement in crude oil prices," AllianceDBS Research chief economist Manokaran Mottain told StarBiz.

"It is also attributable to the weakening US dollar, following weak economic data and hints from the US Federal Reserve that there might not be any rate hike in the near-term," he explained.

The People's Bank of China (PBOC) yesterday set the average yuan exchange rate higher by 0.3 per cent - which was the biggest increase in three months - at 6.5118 against the US dollar. This drove the yuan, which is still allowed to move to a maximum of 2 per cent on either side of the reference rate, to close 1.23 per cent higher at 6.4945 against the greenback.

Over the weekend, PBOC governor Zhou Xiaochuan was quoted as saying that there was no basis for the yuan to keep falling.

Zhou also said that China was committed to keeping its currency stable against a basket of other major currencies, while managing the daily volatility of the yuan against the US dollar.

Besides China's policy action, the strong rebound in global crude oil prices since last Friday also contributed to the improvement in investor sentiment, which drove regional capital markets higher.

Brent crude, which is the international oil benchmark, has jumped by about 10 per cent since last Friday to trade at the US$33-per-barrel level on renewed hopes of a production cut by the Organisation of the Petroleum Exporting Countries. This helped ease concerns over Malaysia's declining revenue from oil and gas sources.

"As long as crude oil prices do not go below the US$30-per-barrel level, the ringgit will remain relatively steady amid the reversal in the outlook for the US dollar," Singapore-based head of foreign-exchange research at Malayan Banking Bhd Saktiandi Supaat said.

In its fixed-income report, BIMB Research said: "We believe that external developments, with the Bank of Japan's adoption of negative rates and a dovish US rates market, supported flows into higher yielding regional currencies of which the MGS (Malaysian Government Securities) benefited as well."

As at end-January 2016, foreign ownership of MGS rose to RM164.4bil, or 47.9 per cent of total outstanding MGS, from RM162.1bil, or 47.7 per cent, in December 2015.

Meanwhile, the ringgit also traded higher against other major currencies yesterday.

It rose 1.1 per cent against the Singapore dollar to 2.9536; 1.6 per cent versus the Japanese yen to 3.6264; 1.5 per cent against the euro to 4.6238; and 1.1 per cent against the British pound sterling to 5.9870.

Impact of the falling ringgit on Singapore

  • The Malaysian Ringgit (MYR) slumped to an all time low at RM3.12 to the Singapore dollar (SGD) on Nov 28.
  • This sounds like an excellent chance to head to Johor Bahru (JB) and make all the purchases while it lasts. The already cheap food and groceries just got cheaper and fuel is about a third of Singapore's price.
  • But while we might be rejoicing now that the MYR has spiraled downwards, but in the mid to longer term, the ones that would be suffering the most may be Singaporeans.
  • Many often forget that Malaysia is the third largest economy in South East Asia, and within the top three largest export destinations for Singapore's goods and services.
  • If Singapore's currency becomes too strong, there will be a reduction in Malaysian demand for Singapore's exports which will ultimately reduce Singapore's earning power.
  • The short term benefits may be apparent but in the long term, any weaknesses in the economies of our major trading partners will not be good news for Singapore.
  • But there are ways to take advantage of the weaker ringgit. As individuals, we can head to the moneychangers and buy up some MYR.
  • Singaporeans should definitely consider visiting JB for their delicious food and other goods. There are also many things that are simply cheaper in Malaysia.
  • A combo adult ticket, which allows you entry to the theme park and the water park, costs RM175 while the child and senior option costs RM140.
  • An entry ticket to the park featuring the world famous cat (which caused confusion earlier this year before creator Sanrio confirmed it really is a cat) costs RM75 for both adults and children.
  • The rib-smacking restaurant opened an outlet at the Komtar JBCC, a stone's throw from the Woodlands Checkpoint. They currently have a promotion called the Tony's Fiesta Platter, which costs RM148.
  • In light of the recent painful developments - it still hurts thinking of the Lions' exit from #AFFSuzukiCup - here's how much you will fork out for the Malaysian national team jersey.
  • If you have a couple of hours to while away, laser tag is a fun option for the young and young-at-heart.
  • Singaporeans can also consider investing in Malaysia. If we were to invest in the KLCI Index at Dec 31, 2006, we would have made a handsome return on about 48.6 per cent.