Update for November, 2019: 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 over the past few years.
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?
Out of those three factors, budget problems arguably show the greatest potential of battering the ringgit worse.
Currently, the Malaysian ringgit floats at around 4.2 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 agrees.
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 have been quite orderly.
Malaysian Ringgit vs. Singapore Dollar
The ringgit also fell sharply against the Singapore dollar, trading near all-time lows. Malaysia’s ringgit traded around 3.05 against Singapore’s currency in November, 2019.
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% or higher compared to last year.
Money changers saw even greater numbers. They’re saying Malaysian ringgit demand doubled between some months. A few of them ran out of ringgit bills as large numbers of Singaporean traders rushed northward and exchanged 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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