SGD/MYR back above 3.0000 and pre-coronavirus levels

A weakening Malaysian ringgit driven by recent health and political crises has lifted the currency pair by 1.36% since Thursday 20 February.

SGD/MYR at two-month high

The SGD/MYR has risen 1.36% since Thursday 20 February, on the back of a weakening Malaysian ringgit (MYR).

The currency pair is trading at RM3.0272 as of 11.20PM on Monday 24 February Singapore time. This is the duo’s highest level since 16 January, one week before the coronavirus (COVID-19) outbreak began to make global headlines.

COVID-19 concerns and turmoil within Malaysian government

Market analyst at FXTM Han Tan had told The Edge Malaysia that ongoing COVID-19 concerns and recent local political developments have been negatively impacting the ringgit.

Political uncertainty has arisen in Malaysia in the last two days. On Sunday February 23, it was reported that Prime Minister Tun Dr Mahathir Mohamad’s Parti Pribumi Bersatu Malaysia and opposition parties have been in closed-door talks to form a new coalition government that would exclude Dr Mahathir’s planned successor Datuk Seri Anwar Ibrahim.

The following day, Dr Mahathir’s office announced his resignation from his position of Prime Minister and Chairman of his political party Bersatu, in what some have called a ‘shock move’.

The King of Malaysia has accepted Dr Mahathir’s resignation, but has requested for him to stay on as the interim Prime Minister until a replacement is appointed.

The USD/MYR – another currency pair of note – has also risen over 2.32% since 11 February to RM4.2255 as of 3.30PM on 24 February.

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New COVID-19 cases ‘sparked off a fresh round of risk aversion’

As IG Asia market strategist Pan Jingyi wrote in a daily morning note to clients on 24 February, a ‘jump in (COVID-19) cases outside of China over the weekend, particularly South Korea and Italy, had sparked off a fresh round of risk aversion’.

According to Pan, when there is volatility and growing risk aversion, minor currencies that are viewed as riskier assets like the ringgit, tend to be subject to greater downward pressure on the back of more panic selling and offloading.

On Saturday February 22, China confirmed 630 new cases of the coronavirus and 96 additional deaths, while South Korea raised its national disease alert level to the maximum as total cases jumped to 169. Later that day, Chinese Premier Xi Jinping called the coronavirus crisis ‘the largest public health emergency’ since 1949.

Other Asian markets were also not spared on Monday. Unsurprisingly, South Korea’s KOSPI Index suffered a steep drop of as much as 2.8% within the first few minutes of trading.

Risk sentiment ‘likely to sustain’

Pan warned that this risk-off sentiment is likely to ‘sustain into the day’, with the coronavirus situation ‘keeping upsides capped even if we should see some retracement after the initial reaction playing out at present’.

Investors should also brace themselves for a slew of economic indicators that will provide a better gauge of the damage from the latest virus updates, she added.

Still, with the Singapore dollar also facing its fair share of problems – the USD/SGD rallied to a three-year high last Thursday after Singapore Finance Minister Heng Swee Keat reiterated the central bank’s policy of loosening the exchange rate policy band – it remains to be seen whether this upward momentum for the SGD/MYR will last for long.

For now, the SGD/MYR is not showing any signs of slowing down, with the minor pair approaching its fifth straight day of ascend.

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