Singapore’s dollar surged to an all-time high against the Malaysian ringgit as the latter was weighed down by weaker exports and its widening rate differential with the US. 

The Singaporean dollar rose as high as 3.4826 versus the ringgit on Friday (Oct 20). That’s because the local dollar was supported by previous rounds of policy tightening.

Bank Negara Malaysia on the other hand paused interest-rate hikes in July, which has put its overnight policy rate at a record discount relative to the upper bound of the Federal Reserve funding rate.

The ringgit also faces headwinds from seven straight months of exports decline through September, partly due to a slowdown in China, its largest trading partner.

Capital flows have also hurt sentiment as global funds sold US$324 million of Malaysian stocks in October, the first outflow in four months. Ringgit bonds also saw two straight months of net foreign withdrawals as of September. 

All that’s made the Malaysian currency the worst performer in Asia against the dollar this year after the yen. The currency extended declines versus the greenback to fall to the lowest since 1998. The Singaporean dollar-ringgit pair is gaining attention as both economies have tight trading ties and share one of the busiest land borders in the world. 

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The ringgit’s underperformance stands out due to “still-weak sentiments in China, higher US yields, risk-off sentiment from the Israel-Hamas conflict and a slump in Malaysia’s exports,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp in Singapore. “The next key level to watch would be 3.48, which could serve as a key resistance level.”

Singapore dollar’s upward trajectory is supported by five successive rounds of policy tightening until October 2022. DBS Bank said in a note that it expects the currency’s appreciating stance to be maintained into 2024 due to the upside risks from inflation. BLOOMBERG