Strong M’sian ringgit causes lower investment in the S’pore dollar

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By Marcus TJ

The Singapore dollar has been experiencing a strong period of late against the US dollar, and some currency traders are taking a bearish position when it comes to the currency, though analysts advise that this should be a short term consideration. While this is good news for those looking at Singapore, it seems that investment in the currency is less interesting to Malaysian investors, who are buying less of the currency as it drops in value against the currently strong Malaysian ringgit.

Exotic Currencies

For most traders heavily involved in currency, both the Singapore dollar and the Malaysian ringgit class as exotics, and this means they are usually traded in pairs that include the US dollar, or other ‘major’ world currencies like the euro, British pound, or Japanese yen.

However, for people based in Asian countries that use what are considered exotic currencies on the global market, it can actually make sense to trade in pairs that pit their home currency against other Asian currencies, and not necessarily the larger ones like the yen. This is simply because it can be easier to follow the economic calendars and socio-political events that affect currencies closest to you, and where most activity occurs during your business day. In Malaysia, trading pairs that use the ringgit with the Singapore dollar can therefore be a fairly popular choice.

Effects of a Weak Singapore Dollar Against the Ringgit

Last week saw the Singapore dollar reach a low of RM3.07. If you consider that the average in April was RM3.17, this indicates that the ringgit is experiencing significant gains against the Singapore currency. Money changers in Malaysia have reported a serious drop in people buying the Singapore dollar – something they notice happens whenever the price goes below RM3.10. A spokesman for one exchange company in Toa Payoh confirmed that usually, as soon as the price drops below this psychological level, a 50% drop in purchase of Singapore dollars occurs. Money changers in Malaysia seem to agree that buying increases to peak levels at around the RM3.15 mark.

Why Is the Ringgit Strong Right Now?

Ringgit prices are affected by a lot of factors, and it could be that it has benefited from more stable oil prices since the limits on oil brought into effect by an agreement between OPEC and non-OPEC oil producing nations in recent months. The ringgit, like the Singapore dollar, is also very sensitive to the strength of the US dollar. The weak dollar lately has seen both the Malaysian ringgit and the Singapore dollar strong against it, and should the dollar gain strength, this effect could be reversed quite quickly.

What this means right now is that if you are looking at USD to SGD exchange rates, the Singapore dollar is faring pretty well, however the Singapore dollar is not such a good buy if the Malaysian ringgit is your usual currency. Price fluctuations against the dollar will have an effect on both of these Asian currencies in the coming weeks, but investment in the SGD from Malaysia is unlikely to gather speed unless the RM3.15 threshold is reached.

 

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