Coffee Break: Putting one’s finger on the ringgit’s strength

This article first appeared in Capital, The Edge Malaysia Weekly, on March 12, 2018 - March 18, 2018.
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Ever since I found out about that 10-year anniversary surprise trip to the US (not anymore, hah!) that my husband has been planning, I’ve been monitoring the movement of the ringgit like a hawk in hopes of getting the best rate for it.

My dearest is upset that I found out about the holiday too soon and accused me of being too inquisitive. In my defence, it wasn’t me who programmed the dates of the flight tickets into our shared iPhone calendar.

Nevertheless, he soon came around and agreed it was probably best that I was kept in the loop since I’m a business journalist with supposedly superior financial knowledge.

Anyway, back to the ringgit. Over the last year, it seems to have recovered from its sharp depreciation against the US dollar, so much so that it was even the region’s best performing currency last year, strengthening 9.95% against the greenback.

Just three months into the new year, it continues to delight Malaysians and foreign workers here as it trended below the psychological level of 4. It is now at 3.90.

But what is driving the ringgit’s strength? Most of the experts who were asked seem to give pretty straightforward explanations. It’s really nothing more than what you would read in The Edge Financial Daily or The Edge of late.

To summarise, it has got to do with gross domestic product growth in 2017, which exceeded everyone’s expectations. Some say the ringgit has been undervalued for too long and people are beginning to realise this, thus fanning interest in it once again.

Then there are those who believe Bank Negara Malaysia’s requirements for exporters to convert 75% of their proceeds back into the ringgit has given the currency a boost.

Yet others point out that it is really because the US dollar has weakened against other currencies, meaning the ringgit didn’t really strengthen but is merely benefitting from the weak sentiment towards the US dollar. Just take a look at the US Dollar Index.

One theory I find especially intriguing is that it is because the general election is just round the corner. Everything seems to be election-related these days!

“It’s because election is coming mah … so the incumbents have to support the ringgit up loh. Creates a feel-good factor for everyone and then you will vote correctly,” says my trader friend Aunty Jasmine, who survived the 1997 financial crisis.

“In fact, arr … When election comes, the ringgit should be fairly stable one,” she adds.

I’m not sure how true that is but logically speaking, any investor with a substantial amount of capital who sees this coming election as a political risk — just like any election in other parts of the world — would minimise his position or perhaps consider placing his cash in safe havens, such as the yen.

So, what is really driving the ringgit’s strength? Great GDP numbers, confidence in the country and fantastic policies?

I do hope that that’s all there is to it.

Oops! Being a woman, am I being too suspicious, as my dearest constantly reminds me? Maybe I should have more faith in the official statistics that paint rosy prospects for the economy.

So, my beloved country’s stronger currency is cause for rejoicing.

Please excuse me while I go shopping for all that amazing stuff on Amazon and start planning for that trip to the US.

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