Approximately 3 months ago, I made a post stating that SGD may rise above 2.50 MYR at the end of this year (http://www.miricommunity.net/viewtopic.php?f=1&t=50541) Well, it seems we don’t have to wait that long.
Singapore dollar at 14-year high vs Malaysia ringgit
The Singapore dollar hit a 14-year high against the ringgit on Wednesday as offshore funds continued to buy in the currency, seeking relatively safer assets in midst of financial turmoil, and on views that Malaysia may allow a weaker currency to spur growth amid global economic slowdown. The SGD rose 0.7 percent against the neighboring unit to 2.5170, the highest since July 1998.
That came as yields on Malaysian government bonds stayed much higher than Singapore bonds. Spread between 10-year Malaysian bonds and 10-year Singapore bonds has widened 15 basis points (BPS) so far this month, reflecting that investor confidence in Singapore has strengthened vis-a-vis its neighbor.
“Investors really like Singapore assets due to the safety and stability of Singapore dollar,” said BNP Paribas currency strategist Thio Chin Loo in Singapore. She said the Singapore dollar, which is now one of the most stable currency in the world, may head to 2.55 per the ringgit.
Massive fund inflows into Singapore as investor confidence rises
Singapore is the only country in Asia with a credit rating of AAA and its currency has been the second best-performing regional unit after the Philippine peso with a 2.5 percent gain versus the US dollar.
Saktiandi Supaat, head of FX research at Maybank in Singapore, said the Singapore dollar is expected to remain firm against the ringgit this year. “The ringgit may see more volatility and its weakness may be more pronounced compared to the past, while the Singapore dollar is locked in a band. Inflation differentials may potentially lead to some speed of change in policy responses too,” Supaat said.
He expects the Singapore dollar to stay around 2.51 versus the ringgit by the end of the year, although it may head to 2.55 before that. But Maybank’s Supaat said it may be difficult for the Singapore dollar to extend gains versus the ringgit from the current level much further in the longer term, adding the city-state’s currency on Wednesday was boosted by a higher Australian dollar.
Malaysia is expected to further weaken currency to boost export competitiveness
“Inherently there is the risk of capital inflows into Singapore bonds and property markets for safe haven reasons and also for expected appreciation. This may feed into asset price inflation. At worst, these are hot money inflows, there is always a risk of sudden outflows,” said Supaat.
He however, predicted that the Singapore dollar will retreat back to 2.40 versus the ringgit by the end of 2013.