KUALA LUMPUR: The ringgit hit an all-time low of 3.549 against the Singapore dollar today, as it hit 4.763 against the US dollar.
At 9.01am, the ringgit stood at 4.7590/7625 against the greenback.The ringgit was trading at 3.5425/5454 against the Singapore dollar.
Analysts said the Singapore dollar's strength against the ringgit is due to the upward trend of the US dollar, which could see the ringgit weaken to 4.8 against the US dollar in the near-term.
"On Tuesday, the absence of significant data allowed yields to drift lower after recent sharp rises. This holding pattern can frustrate markets expecting rate cuts. "However, given the stronger US economy and the potential for higher yields, short-term pressures could drive yields higher, exerting negative pressure on the ringgit. "As a result, we might witness an overshoot to 4.78-4.80 against the ringgit," SPI Asset Management managing director Stephen Innes told Business Times.
Looking beyond short-term fluctuations, he said the Fed's rate-cutting trajectory for this year hinges on inflation cooperating, which it has done over the past six months.
Therefore, he said it is reasonable to assume that the ringgit is either at or very near the weakest level.
He said the market would have more confidence buying the ringgit if the US economy cools and the Fed cuts rates sooner than later.
However, as the market debates a higher Neutral rate (the level where Fed funds will eventually settle), any anticipated US dollar sell-off might be more limited.
"Consequently, local markets may soon need to reassess their bullish outlook for the ringgit in this context," he noted.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid has a more bullish view on the ringgit, with a correction in the offing since the ringgit is currently oversold from a technical analysis point of view.
"I believe that the ringgit is likely to stage a rebound today given that China's government likely to come up with a forceful economic stimulus amidst critics that the govt is not doing enough to bolster investors confidence.
Meanwhile in explaining the performance of the Singapore dollar against the ringgit Innes said the Monetary Authority of Singapore (MAS) tends to keep their policy band these days on an appreciation tangent to ward off imported price pressure.
"Hence, the Singapore dollar tends to hold up well, even on bouts of US dollar strength."The outlook is quite favorable, with the Fed expected to ease rates this year, which should."The ringgit is lagging Asia foreign exchange (FX), likely due to political clouds, which always seem to hang over local currency markets," he told Business Times.
Echoing similar views, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the MAS manages their monetary policy via targeting the exchange rate, which is the Singapore Dollar Nominal Effective Exchange Rate (SGDNEER).
Presumably, he said the US dollar would account for one of the largest shares as the US is one of the key trading partners.
The currency composition is not disclosed to the public.
"So when US dollar increases, effectively Singapore dollar would rise in a similar trend. "That could explain why Singapore dollar is strenghtening against ringgit," he added.