Posted on 19 Jan 2016
The current condition of the ringgit contributes to the resilience of Malaysia’s trade performance, despite the deteriorating trade activity among Asian countries, according to MIDF Research.
Despite seasonally adjusted month-on-month contraction for three consecutive months for non-oil domestic exports in Singapore — which contracted by 0.33%, 3.84% and 3.13% in October, November and December respectively — Singapore’s imports from Malaysia shows slight improvement, where the contraction fell from 10.2% year-on-year (y-o-y) to 9.6% y-o-y.
However, it should be noted that the yearly contraction was mostly due to the oil price and even the slight improvement is due to the oil price. Singapore’s non-oil imports from Malaysia fell from a growth of 4.1% y-o-y in November, to 1.5% y-o-y in December.
Being an exports-led growth economy and one of the most important trading partner for Malaysia, the health of Singapore’s exports could be a proxy of the health of the Asian economy.
Meanwhile, the correlation between the oil price and ringgit seems to continue to weaken. Despite oil price closing 1.35% lower at US$28.55 yesterday (Jan 18), the ringgit appreciated marginally by 0.045% against the greenback.
Oil price has fallen by approximately 36.0% since November, but ringgit has been relatively unaffected, as it only depreciated marginally by 3.1%.
“Previously, ringgit was one of the currency that possess the highest correlation with the oil price, however since December, there has not been any significant correlation between the two.”
“We believe the loose relationship between oil price and ringgit could be contributed to the fact thatrRinggit is currently significantly undervalued relative to its fundamentals and the fact that Malaysia is becoming less dependent on oil price, and we are still able to keep with our fiscal consolidation plan, despite the plunge in oil price.”
