Regional currencies expected to weaken

The battered Malaysian ringgit, however, managed to regain some ground against the Singdollar over the past week.
The battered Malaysian ringgit, however, managed to regain some ground against the Singdollar over the past week. PHOTO: REUTERS

Regional currencies are generally set to weaken further following a shock move yesterday by the Bank of Japan (BOJ) to adopt negative interest rates.

The dramatic step has reignited fears that regional central banks will enter into a tit-for-tat currency devaluation fight.

The battered Malaysian ringgit, however, has managed to regain some ground against the Singdollar over the past week.

It was aided by a slight rebound in the price of oil - a key Malaysian export - and a brighter economic outlook following government steps to shore up the economy.

The ringgit rose more than 1 per cent to RM2.91 to one Singdollar, a level last seen in August last year.

Analysts said the currency was helped by higher oil prices and positive market sentiment over reforms announced by the Malaysian government in its Budget revisions.

Mr Sim Moh Siong, a senior currency strategist at the Bank of Singapore, said the outlook for regional currencies has stabilised since the start of the year, as central banks have come to the rescue amid disinflationary fears and lacklustre economic growth.

However, in the medium term, regional currencies are generally expected to weaken, dragged down by a weaker yuan on the back of slowing growth in China.

This effect will also weigh on the Singapore dollar, and commodity- dependent currencies like the Australian dollar, noted Phillip Futures forex dealer Jerome Lee.

He expects the Australian currency to stay around parity with the Singapore dollar. One Aussie dollar could buy about S$1.01 yesterday.

Meanwhile, the yen dived yesterday after the Bank of Japan's stunning move. One Singdollar could buy about 84.94 yen yesterday, markedly more than 82.81 yen on Wednesday.

A version of this article appeared in the print edition of The Straits Times on January 30, 2016, with the headline 'Regional currencies expected to weaken'. Print Edition | Subscribe