SINGAPORE: The Singapore dollar hovered at an all-time high against the Malaysian ringgit on Friday (Feb 24), peaking at 3.1687 earlier in the day before easing back to 3.1643 in afternoon trade.
An outperformance of the Singapore currency, rather than a weakening in the ringgit, was behind the movements in the SGD/MYR, analysts told Channel NewsAsia.
Alongside broad-based strength in other Asian currencies such as the South Korean won and the Taiwan dollar, the Sing dollar edged up as overnight comments from US Treasury Secretary Steven Mnuchin pulled down the US dollar.
Speaking to CNBC in his first televised interview since taking office, Mnuchin said he wanted to see tax reform passed before Congress' August recess, but later acknowledged on Fox Business Network that such a timeline was "very aggressive”. US President Donald Trump previously said he would announce a "phenomenal" plan by early March to cut business taxes.
“Overnight comments from Mnuchin seem to suggest that the tax reforms will only be read in August. If that’s the case, dollar strength will only come later,” said Mr Christopher Wong, senior FX strategist for Maybank.
“Even on Trump’s point of declaring China as a currency manipulator, Mnuchin said there’s no plan to do that so there seems to be a contradiction in there,” Mr Wong added. “This sets the stage for Trump’s first address to a joint session of Congress on Feb 28, which markets will be keeping an eye on for more details of his tax reform and infrastructure plans.”
Little clarity on the US president’s proposed fiscal stimulus has reined in the US dollar's rally since the start of the year, allowing Asian currencies to take a slight breather.
On Friday, even a below-par industrial production report failed to dampen the spirits of the Sing dollar, which was last seen at 1.4050 per US dollar in afternoon trade. Earlier in the day, the local dollar hit 1.4091 against the greenback, its highest since Nov 10.
“The outperformance of the Sing dollar occurred way before the data release but even that had little impact. Simply because the big swing this month in industrial production was due to the biomedical manufacturing, which is typically quite volatile,” Mr Wong said.
Amid expectations of further bouts of US dollar weakness, analysts expect the Sing dollar to continue outperforming.
“The narrative surrounding Trump and his agenda is fraying and that’s causing these movements. With a little bit of recovery in risk sentiment given the push back in moves that could inflate trade tensions, we see low-yielding currencies like the Sing dollar doing better,” said Mr Julian Wee, senior markets strategist for Asia at National Australia Bank.
On the other hand, the Malaysian ringgit will likely continue to underperform most of its Asian counterparts.
One reason for that is Bank Negara Malaysia’s lack of adequate foreign exchange reserves to “smooth out the depreciation” of the currency amid a strong dollar environment, Mr Wee noted.