S'pore dollar surges against M'sian ringgit
SINGAPORE, July 11 (Reuters) - The Singapore dollar hit a
14-year high against the ringgit on Wednesday 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 percent
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 percent gain versus the US dollar.
Saktiandi Supaat, head of FX research at Maybank in
Singapore, said the Singapore dollar is expected to remain firm
against the ringgit this year.
"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
percent, almost triple of Malaysia's 1.7 percent.
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 on Wednesday was boosted by a higher
Australian dollar.
"Inherently there is the risk of capital inflows into
Singapore bonds and property markets etc. 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 will retreat back 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 4 billion Malaysian ringgit ($1.26 billion)
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 euro zone 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 euro zone bailout fund.