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