Singapore dollar soars to a 17-month high against the Malaysian ringgit

The Singapore dollar climbed to a 17-month high against the Malaysian ringgit on Wednesday, supporting its year-to-date rise as the Malaysian currency weakened on concerns that the country’s debt may be dropped from the FTSE World Government Bond Index (WGBI).

The Singapore dollar peaked to an intraday high of RM$3.0632 on Wednesday, the highest since it reached RM$3.0656 on November, 20, 2017, charts from xe.com showed.

The selling pressures eased on Thursday, 2.33am UTC, with the ringgit at RM$3.05633 against the Singapore dollar.

The Singapore dollar has strengthened against the ringgit this year, after a temporary dip in February and March.

The year started off with the Singapore dollar touching RM$3.0318 on January 2, before falling lower in early February. On February 10, the currency traded at RM$2.9932 against the Singapore dollar.

For the month of March, the ringgit hovered around intraday lows of RM$2.9735 and faced resistance at RM$3.0227 levels. On April 9, the Singapore dollar broke the resistance level and traded at RM$3.0250 before it continued its upward ascend over the past 10 days.

Malaysia’s FTSE Bursa Malaysia Kuala Lumpur Composite Index sank 9.13 points on muted trading on Thursday, down by 0.56%, at 1611.77.

Risk to drop Malaysian bonds from WGBI “likely”

Earlier this week, global index provider FTSE pointed out a possible exclusion of Malaysia from its WGBI due to concerns on market liquidity. The news comes after Norway said its sovereign wealth fund will cut emerging-market debt including Malaysian securities from its index.

Malaysia has been part of the WGBI since 2004, and if the FTSE review decides to downgrade the country, it may face around US$8 billion in outflows, Morgan Stanley estimates.

Since late 2016, foreign investors have been reducing their appetite in Malaysia, shrinking their Malaysian government bond positions and as of March, the investors held around US$37 billion of the securities, the Morgan Stanley report said.

Unless fundamental changes are made to improve Malaysia’s market accessibility level, ‘the risk of dropping Malaysian bonds from the flagship index seems more likely than not, in our view’, said Maybank Kim Eng Securities’ head of fixed-income research Winson Phoon.

Ringgit at a three-month low against the greenback

The Malaysian currency closed at almost a three-month low against the United States (US) dollar on Wednesday, dampened by weak sentiments towards the currency following the news of its possible downgrade by FTSE Russell.

The ringgit fell to RM$4.1330 against the US dollar at around 6pm Malaysian time yesterday, cooling further from Tuesday’s US$4.1310. On January 29, the ringgit was at US$4.1410 against the greenback.