The currencies of Malaysia and Singapore were trading at 6-month lows against the dollar on Wednesday following news that the US had added the Southeast Asian nations to its watchlist of suspected currency manipulators.
Malaysia and Singapore have been added to the United States’ watchlist of suspected currency manipulators, it was announced on Tuesday. The news created a mood of negativity which, coupled with a strong US dollar, drove the Malaysian ringgit and Singapore dollar to their weakest levels since November.
When last seen on Wednesday, the ringgit was approaching a rate of RM4.2 per USD and the Singapore dollar was quoted at S$1.384. Minimal depreciation from here would have both currencies at their weakest levels since 2017.
In a semi-annual report to Congress, the US Treasury department said it had added Singapore and Malaysia to its watchlist of nine countries suspected of weakening their currencies in order to gain a trade advantage — countries that now warrant “close attention.”
Singapore and Malaysia join Vietnam China, Japan and South Korea in the list’s Asian contingent. In Europe, the US is also monitoring Germany, Italy and Ireland.
Should countries be deemed currency manipulators, Washington could make their US-bound exports more expensive by adding or increasing tariffs, as it has done with China over the past year.
The Treasury’s criteria for determining manipulation includes the existence of a significant trade surplus with the US (for countries whose bilateral trade is worth at least US$40 billion annually), a large current account surplus or persistent interventions in foreign exchange markets.
Officials stopped short of explicitly labelling any country a currency manipulator. “No major US trading partner met the relevant 2015 legislative criteria for enhanced analysis [as a manipulator],” the press release reads.
In percentage terms, Singapore runs one of the world’s largest current account surpluses, at 18 percent of GDP, making it a prime target for US officials.
In its own statement, the Monetary Authority of Singapore has asked for the surplus to “be viewed in context,” adding that it will “be reduced when public and private savings are drawn down for the needs of an ageing population.”
The Treasury also highlighted Malaysia’s “significant” bilateral trade surplus with the US — a surplus that reached US$27 billion in 2018 — as well as Bank Negara’s foreign currency sales, which were worth 3.1 percent of GDP in 2018 and have been used to raise, or at least support, the ringgit’s value.
Both the MAS and Bank Negara have denied currency manipulation.
MAS affirmed that policy “has always been aimed at ensuring medium-term price stability,” adding that it “does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus.”
Bank Negara emphasized that recent market interventions have been in “both directions,” and that all interventions had the sole aim of “avoiding excessive [currency] volatility.”
Both the Singapore dollar and ringgit are expected to weaken further in the coming months on the back of lower economic growth stemming from the recent escalation in US-China trade tensions.
On the ringgit, Morgan Stanley expressed a bearish view earlier this month: in its mid-year MYR forecast, it told clients to expect an exchange rate at or above 4.22 per USD sometime in the third quarter.
Likewise, with electronics exports likely to suffer amid tighter trade conditions, the Singapore dollar will weaken, compounded by speculation of monetary policy easing.
“Potentially weak [economic] data may push MAS expectations toward a more dovish side,” Westpac’s head of macro strategy for Asia, Frances Cheung, said last week.