This is a quickie update, as I haven’t time for a full work up (look for that next week), but the news of the Ringgit hitting a new high needs some perspective:
KUALA LUMPUR: The Malaysian ringgit hit a new 13-year high of 3.0345 in intra-day trading yesterday before ending trade at 3.036.
A local wire service quoted a currency trader as saying the new high was driven by speculation that Asian central banks may raise interest rates to curb inflationary pressures and the continued demand for the local currency.
An AmBank Group report said yesterday that the ringgit's strength was precipitated by stronger-than-expected December export data, as manufacturers shipped more palm oil and petroleum products to customers in South-East Asia and Japan.
The MYR has this year been slowly moving up to the 3.00 MYR to the USD barrier, with traders probably looking over their shoulders at BNM (index numbers; 2000=100):
But while the MYRUSD rate is traditi0nally the one most quoted, it’s not the only bellwether for determining relative currency strength. It’s hard to tell with less than two days trading so far this month whether there’s further momentum under the Ringgit’s rise – January showed some strength, but we’re seeing some other Asian currencies catching up (index numbers; 2000=100) :
Note that nominal trade-weighted index is still below September’s high of 104.97, and well below the previous peak of 109.28 recorded in February 2002. Short version: As it has been for the past year, this is still a USD is weak story not a MYR is strong story.
If conditions in the US continues to improve this year, as I expect, then we might see a reversal of the two year USD bear market. And then we’ll have a better idea of the Ringgit’s potential.
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When u say 'a reversal of the two year USD bear market', are u pointing to a stronger USD against MYR i.e USDMYR can go back higher to more than 3.10 instead of going below 3.00 as many 'analysts' are targeting?
ReplyDeleteNot exactly, I was actually thinking more of the USD movement against all other currencies (the nominal trade weighted index) - I think the Ringgit will probably hold steady or rise slightly, even if the USD recovers.
ReplyDeleteLong term, I've looking at RM2.50 by the end of the decade, though by the way things are going, we might get there a lot sooner.
Do you think the US Economy is about to grow this year or early next year? If so, US high spending in the last 2 years will make its inflation rate growth high, especially when most of the emerging countries tighen their monetary policy. Then, US might expected to tighten its spending by rise interest rate and etc. Hence, I don't expect the possible of RM 2.50, but higher inflation rate in Malaysia in 2012 is definate.
ReplyDeleteActually, the US economy has been growing for near on two years now - latest estimate for 4Q 2010 growth is 3.2%. Their problem isn't growth per se, but that growth isn't fast enough to reduce unemployment. Despite all the angst in Congress, the deficit isn't all that big either, compared to other developed countries.
ReplyDeleteBut I agree that it does look as if the Fed might exit their easing phase earlier than expected, which is positive for the USD.
Thing is, higher inflation in Malaysia (which is quite likely since its still way below trend) would also prompt a monetary response from BNM. The real interest rate differential between the US and Malaysia is about 2% - if both central banks move, that's still Ringgit positive.
I don't think we'll get to 2.50 this year though - when I mean "sooner" I'm thinking 2015-2016. BNM seems to be keeping the Ringgit within a 3%-4% annual appreciation band over the USD, which gives a target date of about 3Q 2015.
The appretiation of MYR againt USD will make the export less competitive, which is a big porpotion of our GDP. so, I guess BNM will not do it, even in 2020, unless there are other better currecy used and replace USD for international trading.
ReplyDeleteAnon 4:52 substituting another currency doesn't change the relative strength or weakness of the MYR vs USD.
ReplyDeleteNet exports are actually just 13% of GDP over the last 3-4 years, and the marginal contribution to growth is even lower (see here).
ReplyDeleteI'm going to update those numbers when the full year 2010 GDP figures come out. For GDP, it's the net figure that matters (exports minus imports), not the gross volume of exports.
Plus, a higher currency is necessary to increase household purchasing power, as well as meeting the GNI targets of the NEM (see this post).