Ringgit strengthened against USD due to air-tight BNM policies

Tighter central banking policies have strengthened the Malaysian Ringgit and Singapore’s Dollar leading to the two currencies rising up to the most in the last 18 months against the US dollar.

THis happened even as the US Federal Reserves are contemplating rate cuts. Analysts and investors will be looking for signs of easing in Chair Jerome Powell’s speech at the central bank’s economic policy symposium on Aug. 22-24 at Jackson Hole, Wyoming.

The Malaysian ringgit was the best-performing Asian currency, up 5.3% for the year through Tuesday, trading at 4.361 per dollar, its highest point since February 2023. RM’s strength is a reversal from February when it dropped to its weakest in 26 years.

“Efforts by the Bank Negara Malaysia (BNM) to encourage state-linked corporates to support the ringgit have helped,” said Lloyd Chan, FX strategist at MUFG in Singapore to Nikkei Asia.

He said companies have brought back overseas income to Malaysia, and that Kumpulan Wang Persaraan (Diperbadankan), the country’s largest state pension fund, has stopped investing overseas.

A stronger Chinese currency in response to the U.S. moving towards cutting rates has helped boost the Malaysian ringgit, said David Forrester, a senior FX strategist at Credit Agricole CIB in Singapore.

“The Malaysian ringgit has been outperforming its Asian peers due to the unwinding of long U.S. dollar-Chinese yuan positions,” he said, referring to positions betting on the weakness of the Chinese currency. The Malaysian ringgit is highly correlated with the Chinese currency.

The Singapore dollar rebounded to 1.3066, a level also not seen since February last year, after slumping to 1.3685 in April.

“Maintaining a tight policy setting has resulted in a strong Singapore dollar,” said MUFG’s Chan. The Monetary Authority of Singapore, the country’s central bank and financial regulator, uses its policy centered on exchange rates rather than interest rates to keep imported inflation in check.

Singapore retained its hawkish monetary policy unchanged since October, even as June’s inflation figures came in lower than expected.

The South Korean won and the Taiwanese dollar were among the worst performers, down 2.7% and 3.9%, respectively.

Fiona Lim, senior forex strategist at Maybank Singapore, said the two currencies have weakened because of their export-oriented economies.

“A large part of recent market volatility is due to fears that the global economy could be weakening … As such, even as U.S. Treasury yields dropped quite precipitously, the Korean won and the Taiwanese dollar were laggards in the region,” she said.

Traders are pricing in big U.S. rate cuts of more than 0.9% by the end of this year, underscoring lingering fears the country may be falling into a recession, she said. But she said the South Korean won and the Taiwanese dollar could strengthen once global growth shows signs of gaining momentum.

South Korea’s central bank is expected to keep its rates unchanged at Thursday’s monetary policy meeting, said Carlos Casanova, senior economist for Asia at Union Bancaire Privee in Hong Kong. The country’s July Consumer Price Index came in higher than expected “which could prompt the Bank of Korea to wait before making any changes,” he said.

The Japanese yen has trimmed its losses rapidly, as the Bank of Japan decided to hike its policy rate in late July, but is still one of the worst performing currencies in the region along with the Vietnamese dong.