PETALING JAYA: The ringgit touched its strongest point in nearly 18 months against the Singapore dollar after the exchange rate dipped below the 3.0-mark again for the second time in 2020.
The Malaysian currency emerged as the immediate beneficiary after Singapore’s central bank, Monetary Authority of Singapore (MAS), hinted at a possible monetary easing move as a result of the weakening economic conditions post-novel coronavirus outbreak.
The ringgit posted the strongest single-day surge in three months against the Singapore currency yesterday, appreciating by 0.51% to 2.9854. Recall that the ringgit-Singapore dollar exchange rate hit 2.9948 earlier on Jan 27 this year.
The ringgit was not the only beneficiary of the weaker Singapore dollar as other key currencies also appreciated on the decline of Singapore’s local note.
The biggest winner in Asia was the Chinese yuan, which appreciated by 1.01% against the Singapore currency. Meanwhile, Indonesian rupiah, Thai baht and Japanese yen all strengthened by 0.94%, 0.77% and 0.57%, respectively, against the Singapore dollar.
As for the US dollar, it appreciated by 0.73% against the Singapore currency.
The Singapore dollar tumbled after MAS said in a statement that “there is sufficient room within the policy band to accommodate an easing of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER)”.
However, the city-state’s central bank has noted that its monetary policy stance remains unchanged at the moment, with the next policy review scheduled in April 2020.
“In Oct 2019, MAS reduced slightly the rate of appreciation of the S$NEER policy band. The S$NEER has been fluctuating near the upper bound of the policy band since then.
“There is, therefore, sufficient room in the band for the S$NEER to ease in line with any weakness in the Singapore economy in the coming months, ” stated MAS.
Commenting on MAS’ signal on its preparedness to ease monetary policy, AxiCorp chief market strategist Stephen Innes concurs that it is harmful for the Singapore dollar.
However, it “adds to the global narrative that central banks have investors backs”, he said.
Innes recommends investors to short the Singapore dollar against South Korean won, Indonesia rupiah and Indian rupee.
“The great thing about shorting the Singapore dollar for a month or two is that it’s a problematic currency to fade since MAS only meets bi-annually, ” he said.
Central banks across the world have been slashing their key policy rates due to mounting concerns on slowing global economic growth.
In the case of Malaysia, Bank Negara dropped its benchmark interest rate, the overnight policy rate (OPR), by 25 basis points (bps) to 2.75% on Jan 22. This is the lowest OPR level in nearly nine years.
Moving forward, economists believe that there is still room for further monetary easing in Malaysia, with OPR cuts ranging between 25 and 50 bps, subject to macroeconomic conditions.
While the ringgit appreciated against the Singapore dollar yesterday, the former slid against several other key currencies.
The ringgit weakened by 0.16% against the US dollar to 4.1170. For context, the ringgit has continued to weaken against the greenback since Jan 17, after the exchange rate touched 4.0547 – the strongest level in a year.
Meanwhile, the ringgit also weakened by 0.07% against the Japanese yen yesterday, 0.13% against the euro and 0.44% against the Chinese yuan.
The ringgit’s depreciation against the US dollar is not entirely surprising as the greenback has also been strengthening against several major currencies.
The US Dollar Index, which is generally an indicator of the greenback’s performance against major world currencies, has risen by nearly 1.8% year-to-date to 98.105 index points.
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