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Malaysian Ringgit Outlook: Has It Turned a Corner?

The Malaysian ringgit has been one of Asia’s worst performing currencies for some time.

Between May-2013 and September-2015 the exchange rate for MYR/USD declined from highs at 0.338 to 0.223 – a 34% fall in the currency’s value.

Markets gave the ringgit some respite between October-15 and April-16, a period in which the ringgit clawed back around half of the aforementioned losses, but then selling against the US dollar began again, which accelerated following the result of November’s US election.

In the month of November, or we could say the “month of Trump”, the ringgit recorded its second largest monthly fall this decade, losing more than 6%.

Also in November, Malaysia’s central bank, Bank Negara, attempted to halt the ringgit’s slide by clamping down on the trading of offshore non-deliverable forwards. The move did slow the ringgit’s decline but also lowered interest in Malaysian assets from overseas investors, who found it harder to hedge their FX exposure. By March, holdings of ringgit-denominated bonds by overseas funds had fallen to five-year lows.

 

Malaysian Ringgit vs. Its Peers

Of course, amid a broad trend of US dollar strength in 2014 and 2015, and the US dollar euphoria following Trump’s election victory – fueled by statements of his intent to implement highly inflationary policies, including up to $1 trillion in infrastructure spending – any currency can look bad. In fact, almost every currency posted losses against the US dollar during these periods, and this would not be concerning.

What is concerning is the ringgit’s underperformance relative to its Southeast Asian peers.

Consider that the ringgit has lost 10% of its value against the dollar within the last twelve-months, yet the Philippine peso has lost 6.5%, the Singapore dollar only 3.8%, the Indonesian rupiah only 1% and the Thai baht has gained 1%. Elsewhere in Asia, for example in India, we’ve seen local currency gain 3.5% versus the US dollar.

 

Why Has the Ringgit Fallen So Much?

Reasons for the ringgit’s underperformance are many, but include:

    • A divergence in the expectations for monetary policy between the US and Malaysia.

 

    • The ‘1MDB’ scandal – a political and economic scandal involving the country’s Prime Minister, Najib Razak, and billions of lost dollars from Malaysia’s state development fund, 1Malaysia Development Berhad.

 

    • Depreciation of the yuan, which impacts Malaysian exports. China is Malaysia’s largest export market and a strong yuan equates to more China buying power.

 

  • Malaysia being included in Donald Trump’s list of sixteen possible currency manipulators – sixteen countries that would be investigated by the Trump administration for undervaluing their currencies in order to gain a trade advantage over the US, with the threat of import duties on goods from “guilty” countries.

 

What Are the Upsides of Ringgit Weakness?

Those should be obvious. Malaysia is a wonderful place to holiday, retire and have a second home. It’s also a source of cheap manufacturing for many western businesses. An extremely cheap ringgit means, simply, that all of the above are currently on sale!

 

Has a Corner Been Turned?

The bad news for foreigners travelling to, or doing business in, Malaysia, is that the ringgit might now be waking up.

Having consolidated and coiled near its lows since December, and been starved of volatility, this week we’ve finally seen sparks of life in Malaysia’s currency.

The ringgit not only broke upwards from its pattern of consolidation this week, but also posted a respectable 1.4% gain against the US dollar. This marks the first time since July-16 that the ringgit has posted any kind of meaningful weekly gain. And this was not a move driven by US dollar weakness. The ringgit gained across the board. Against the Thai baht, for example, it gained 2% – its largest weekly gain against the baht since March-16.

Only time will tell whether this week’s move brings renewed strength to the Malaysian currency. Analysts have for some time held differing opinions on its likely direction. A valuation model created by TradingEconomics.com suggests further ringgit weakness – a move in USD/MYR to 4.46 by the end of June (equivalent to 0.224 in MYR/USD). Other market chatter suggests that the ringgit is coming back into favour on the grounds of higher commodities prices, increased foreign direct investment and revisions to forward hedging rules by Bank Negara.

 

The Cheapest Way to Change Ringgits

Whether you’re a buyer of ringgits, looking to take advantage of current “on sale” rates, or a seller looking to offload ringgit before further weakness ensues, consider your options before changing your money.

Long gone are the days when you had to suffer the inflated FX margins at the local bank or airport’s Bureau de Change. By using BestExchangeRates.com’s online comparison calculators for MYR Travel Money and MYR Foreign Currency Transfers, you’ll be able to find better, cheaper companies with whom you can change your money.

 

 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 
 

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