Thursday July 12, 2012
S’pore dollar at new high, hits 14-year high against ringgit
SINGAPORE: The Singapore dollar hit a 14-year high against the ringgit yesterday as offshore funds continued to seek relatively safer assets and on views that Malaysia may allow a weaker currency to spur growth amid global economic slowdown.
The city-state's currency rose 0.7% against the neighboring unit to 2.5170, the highest since July 1998, as real money accounts and hedge funds bought it.
That came even though 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.
“Investors really like Singapore assets due to safety, the stable Singapore dollar and low rates,” said BNP Paribas currency strategist Thio Chin Loo in Singapore.
She said the Singapore dollar may head to 2.55 per the ringgit.
Singapore is the only country in emerging 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% gain versus the US dollar.
“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.
Singapore's annual consumer inflation in May stood at 5.0%, almost triple of Malaysia's 1.7%.
That may allow Malaysian policymakers to endure a weaker ringgit to boost exports, dealers and analysts said.
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 yesterday was boosted by a higher Australian dollar.
“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 said the Singapore dollar would retreat to 2.40 versus the ringgit by the end of 2013.
Singapore state investment firm Temasek Holdings is in talks to buy a stake in a RM4bil (US$1.26bil) project in Malaysia's southern state of Johor, the Business Times reported earlier. That may boost demand for ringgit.
Meanwhile, most emerging Asian currencies were mixed amid worries about the impact of a global slowdown on corporate earnings, while investors were not convinced the eurozone can bring down the borrowing costs of its debt-ridden members.
Investors are keeping an eye on the result of a German court hearing on the eurozone bailout fund. - Reuters