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Everyone in Singapore who enjoys going to Malaysia, get your Sing dollars ready.
The United States central bank, still in its fight to tame inflation, is expected in a matter of hours to raise interest rates further by 0.75 percentage point, pushing it to 5 per cent by March 2023.
It is likely to then signal it could slow the pace, major financial news outlets reported in the U.S. on Nov. 2 (Singapore time).
With the aggressive rate hikes, the U.S. dollar is likely to be at its strongest since the early 2000s against a basket of other major currencies.
And its impact will be felt around the world, especially on the Malaysia ringgit.
Malaysia ringgit expected to weaken further against U.S. dollar
How the various currencies will eventually play out in the near term -- three to six months' time -- has been reported by The Straits Times, which spoke to an economist and a bank strategist and made them hazard guesses.
In a nutshell, the U.S. dollar looks set to strengthen further, the ringgit is expected to weaken, and the Singapore dollar is poised to remain stable among a basket of currencies -- and could even strengthen further against a weakening ringgit given a confluence of economic events.
The main prediction is that the ringgit is likely to tumble close to US$1 to RM4.90 by end-2022.
It is US$1 to RM4.74 now.
The ringgit could then fall to RM5.00 against US$1 in the first quarter of 2023.
The reasons for a strengthening U.S. dollar against the ringgit are straightforward and predictable enough.
Rising interest rates and stronger economic growth in the U.S. will strengthen the U.S. dollar and weaken the ringgit.
In 2022 alone, the U.S. dollar has strengthened by about 13.7 per cent against the ringgit as of Nov. 1, 2022.
The main takeaway is that there has to be overlapping factors for the ringgit to reach 5.00 against the U.S. dollar.
How Singapore dollar will fare against Malaysia ringgit
On the home front, the Singapore dollar has remained strong among Asian currencies due to the Monetary Authority of Singapore (MAS) tightening monetary policy five times over the past 12 months.
The Singapore dollar has weakened by about 4.7 per cent against the U.S. dollar over the past year -- which is a solid performance -- given that the U.S. dollar has appreciated by about 18 per cent relative to a broad index of currencies.
The Singapore central bank uses the exchange rate as its main policy tool to counter imported inflation concerns.
This also explains why the Singapore dollar has appreciated against the British pound, Japanese yen, Korean won, as well as Thai baht among many other currencies.
Given that the Singapore dollar is expected to remain strong versus the ringgit over the next three to six months, the ringgit could fall slightly against the Singapore dollar to graze a record low of RM3.35 to RM3.45 range -- if the ringgit volatility rises sharply and Singapore dollar remains resilient.
The Singapore dollar blasted to a new high of RM3.30 to S$1 on Oct. 14, and is now at RM3.36 to S$1 some two weeks later.
A majority of the economists project Bank Negara Malaysia to raise interest rates by a quarter point on Nov. 3 to curb inflation and support the weakening ringgit, according to a Reuters poll.
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