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DBS: Premature to conclude one-way fall in ringgit against Singapore dollar after fresh lifetime low

Publish date: Fri, 09 Jun 2023, 11:49 AM

KUALA LUMPUR (June 9): It is premature to conclude that the ringgit/Singapore dollar (MYR/SGD) cross rate has started a new downtrend, after the ringgit depreciated to a fresh lifetime low of 0.2905 against the Singapore dollar on Thursday (June 8), said DBS Group Research. 

The firm’s senior foreign exchange strategist Philip Wee said MYR/SGD is technically still near the floor of a multi-year price channel and a trendline.

“Historically, we observed that MYR/SGD also fell to a record low during the previous major surge in the US dollar (USD) in 2015, corrected up in 2016, fell again, and bottomed at a second lifetime low, not far below the first,” he said in a macro strategy note on Friday.

As at 11.07am, MYR/SGD had appreciated to 0.2912. 

Meanwhile, he said that the ringgit had tracked the Japanese yen (JPY) and Chinese yuan (CNY) very closely on an indexed basis, especially after the US Federal Reserve pushed for “higher for longer rates” in February.

“The yen came under pressure from new Bank of Japan governor Kazuo Ueda’s patience in normalising monetary policy. The yuan was pressured by China’s disappointing recovery, a surprise cut in the banks’ reserve requirement ratio, and a rapid deterioration in US-China relations,” Wee said. 

“However, Japanese officials started warning of intervention when USD/JPY hit 140, while the People’s Bank of China (PBOC) vowed to curb one-way speculation after USD/CNY rose above seven.”

He said Chinese state banks lowered the interest rate ceiling on US dollar deposits by as much as 100 basis points to 4.3% on Tuesday.

Wee added that PBOC deputy governor Pan Gongsheng said on Thursday that the strong US dollar supporting the yuan is sustainable, because the US economy might enter a mild recession following its aggressive rate hikes.

“Elsewhere, markets speculated that South Korea may have intervened to cap USD/KRW, which had fallen below 1,300 from 1,340, despite the higher US dollar,” he said.

As at 11.09am on Friday, MYR/JPY stood at 30.204, while MYR/CNY was at 1.5439.

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