Update for July, 2024: This article was originally written back in 2015, forecasting a decline in the Malaysian ringgit.
Our predictions were accurate and the ringgit saw significant depreciation ever since then.
However, we now rate the currency a “buy” and think it’s near a bottom. We’ve updated all numbers, information, and predictions in this article.
Malaysia’s ringgit (MYR) has suffered from intense downward pressure lately. That’s because of a strengthening US dollar combined with weaker commodity prices – in particular oil, which remains one of Malaysia’s top exports.
Will this trend continue alongside movements in Malaysian bond markets, slow export growth, and issues surrounding the fiscal budget?
Looking at each of those three factors, budget problems show the greatest potential of battering the ringgit worse.
Currently, the Malaysian ringgit floats at around 4.6 against the US dollar. That’s far above 3.8 where it stayed pegged against the dollar during the 1997 Asian Financial Crisis… and near its all-time low.
A ten-year chart of the Malaysian ringgit compared to the US dollar. Is it a currency in terminal decline, or on the verge of recovery? The answer is open to your interpretation.
Is This a Malaysian Ringgit Crisis?
According to several top local analysts, simple market adjustments caused the ringgits freefall. Not everyone agreed.
Saktiandi Supaat, Maybank’s Head of FX Research, stated that political instability creates some uncertainty through the bond market. That’s because foreigners own a significant percentage of bonds in Malaysia.
He explained that changes in foreign sentiment concerning Malaysia government bonds could shift the ringgit’s volatility toward the weaker side.
Yet some experts say that although the ringgit fell past 4.0 against the dollar, it still isn’t a huge concern.
Sim Moh Siong, director and FX strategist at Bank of Singapore mentioned “If you look beyond the ringgit slide, financial conditions in Malaysia right now are supportive compared with what we saw during the Asian Financial Crisis.”
He believes that even though 3.8 is a historic peg level, it’s more of a psychological key number than anything else.
For him, the Malaysian ringgit’s depreciation and financial conditions were quite orderly. Perhaps not an opinion that aged well.
Malaysian Ringgit vs. Singapore Dollar
The ringgit hasn’t just underperformed in terms of USD. It has also fallen sharply against the Singapore dollar, trading near all-time lows.
Malaysia’s ringgit trades around 3.5 against Singapore’s currency as of December, 2023.
Singaporeans are especially taking advantage of this potential forex opportunity. The number of tourists coming to Malaysia from across the border is increasing as the ringgit falls further.
According to Malaysia travel agencies, some months are seeing holiday package bookings rise by 10% year-over-year.
Money changers saw even higher numbers with Malaysian ringgit demand doubling between some months. A few traders ran out of ringgit bills as Singaporeans rushed northward to exchange all of their SGD.
InvestAsian expects the Malaysian ringgit will outperform when compared with other regional currencies in ASEAN and East Asia including the Philippine Peso and Japanese Yen.
Nonetheless, we suggest holding a diverse basket of currencies based in Asia and throughout the world.
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