KUALA LUMPUR, 9 May 2017:

The cross rate between the Singapore dollar (SGD) versus the Malaysian ringgit (MYR) could possibly head lower and return to below the 3.0 level by year-end, says United Overseas Bank (UOB).

Based on current trend, the cross would likely pass through the 3.0 psychological level as the US dollar per ringgit (USD/MYR) is projected to hover at around 4.30 by end-December while USD/SGD may hold at 1.46.

“SGD is seen as a ‘safe haven’ currency in the region, and when the risks were higher, a lot of funds came in to support the republic’s currency.

“The SGD/MYR cross is now seen as quite expensive and there could be a reversion. Based on the rates predicted for year-end, the cross could head lower,” UOB (Malaysia) Bhd economist Julia Goh said at the sidelines of a media briefing on, ‘How Global Events Will Impact Malaysia’s 2017 Growth Trajectory’ here today.

The ringgit rose against the SGD to 3.0822/0855 as at 5pm today from yesterday’s 6pm rate of 3.0856/0886.

For the past decade, the cross had been traded bias to the strength of SGD, with the ringgit weakening to as low as to 3.1726 (16 March 2017). Its best performance was recorded at 2.2178 (25 May 2007).

The republic’s central bank, the Monetary Authority of Singapore (MAS), has been using the exchange rate as its main monetary policy tool to strike a balance between inflation from overseas and economic growth.

Goh said MAS would most likely take a neutral policy stand as the republic’s core inflation was manageable, despite market expectations that the policy might be tightened.

While external risks remain present in the form of uncertainty in the US president Donald Trump’s policies and geopolitical risks, she said there were mitigating factors as Malaysia was part of a wider production base in the region which benefits from domestic derived growth.

Goh said UOB projected Malaysia’s gross domestic product (GDP) growth to expand to at least 4.5% this year and to 4.7% in 2018, compared to 4.2% in 2016.

She said Malaysia’s macro outlook was on the mend as the fog slowly lifts with its rising tide in exports and gains in new orders, reinforcing the bank’s view that the country’s economy should be progressing.

“Commodity prices have also levelled up, supporting Malaysia’s trade and current account surplus.

“After the recent record sell-off, funds started accumulating back to the 40% level in the Malaysian Government Securities. Supported by a US$96.1 billion foreign reserves (as of end-April 2017) and a rising trend in foreign direct investments, the undervalued ringgit is poised to strengthen.”

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