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Is the Ringgit pegged to the Renminbi?

No currency peg but moving in same trend

Although there is no official peg, both currencies are now moving closely in the same trend.

Back in late 1998, Bank Negara Malaysia pegged the Ringgit to the US Dollar following speculative attacks. The peg was set at RM3.80 while the currency remained floated against others. This arrangement introduced stability for seven years. Coincidentally or not, Bank Negara dropped the USD-peg immediately after China announced the end of its own Renminbi-peg to the US Dollar on 21 July 2005. What happened afterwards is a story of the Ringgit and Renminbi walking closely together.

 

China is Malaysia’s largest trading partner

What could be the reason for a ‘divorce’ with the US Dollar and a ‘marriage’ to the Chinese currency? Trade could be the main driver. As a part of the ASEAN-CHINA Free Trade Area, both countries benefit from a trade framework that is the largest free trade area in terms of population (1.9 billion) and third largest in trade volume. With China buying 13.1% of Malaysia’s export, she is also Malaysia’s largest trading partner.

Line of RMB and MYR against the US Dollar

This line and dot chart of USDCNY (black) and USDMYR (red) shows the Renminbi and Ringgit appreciating against the US Dollar

 

ASEAN countries in the same boat

Such closeness is certainly not unique to Malaysia and China alone. Other countries inside ASEAN such as Singapore and Thailand enjoy similar relationship now with China. When overlaid, the Singapore Dollar and Thai Baht display similar pattern. It appears that a group of Asian currencies are now moving in tandem with the Renminbi and that the US Dollar may be gradually losing its shine.

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Additional chart – Asean three plus one

Article is available in PDF

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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One thought on “Is the Ringgit pegged to the Renminbi?”

  1. Shao Guoyong says:

    Amazing! Tracking correlations in currencies may detect shifts in dominance exerted by global economic powerhouse.
    How do other indochina countries with USD-based economies such as Cambodia, Laos, Myanmar & Vietnam fare then since these countries have China as their major trading partners as well?

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