Malaysia, Singapore spat forces currencies to fall
Malaysia, Singapore spat forces currencies to fall
KUALA LUMPUR (Reuter): The ringgit and Singapore dollar fell sharply on Thursday, becoming the first victims of reports that Malaysia has decided to freeze ties with the island nation, dealers and analysts said.
The Malaysian national news agency Bernama's reports late on Wednesday pushed the Singapore dollar to an 18-month low and halted the Malaysian ringgit's steady rise against the dollar, they said.
Malaysian cabinet ministers were quoted by Bernama as saying that all official dealings, including granting of contracts to Singapore firms, were being frozen.
The row was sparked by Singapore Senior Minister Lee Kuan Yew's remarks in a court affidavit that Malaysia's Johor state was "notorious for shootings, car-jackings and muggings".
But, Malaysia's Works Minister S. Samy Vellu said on Thursday afternoon there was no freeze on deals with Singapore, only suspension of cultural and sports agreements.
"The market just reacted to Malaysia's decision. People sold both Sing dollar and ringgit," said a dealer with a European bank in Singapore.
On Thursday morning, the Singapore dollar hit a low of 1.4528/30 a dollar from around 1.44 on Wednesday morning, while the ringgit slipped to a low of 2.4880/85 a dollar against 2.4770/80.
A dealer with a U.S. bank in Singapore said there was heavy selling from Japanese and Hong Kong-based funds, although the two currencies later found support.
They recovered in early afternoon trading, partly on profit- taking and squaring up of positions ahead of the Good Friday holiday, and partly on talk of intervention by the Monetary Authority of Singapore (MAS), dealers said.
They said the defacto central bank of Singapore was said to have bought the Singapore dollar around 1.4520/25. There was no confirmation available from MAS, which does not usually comment on its currency operations.
At 0650 GMT, the Singapore dollar was at 1.4458/68 and the ringgit was at 2.4801/06.
"Many U.S funds were selling (dollars) at the high levels and the dollar has also come off against other major currencies, which carried some weight," said a dealer with a Malaysian bank.
"Dollar/Sing has not seen these levels since September 1995. This is totally new ground," said a dealer with a Malaysian bank in Kuala Lumpur.
"Now people are talking about 1.46 and maybe 1.47. I don't know, it could go up there. This incident has just helped those who were bullish dollar/Sing," said the U.S. bank dealer in Singapore.
But, near-term the statement by Samy Vellu was expected to aid the currencies in a further recovery, he said.
"The market will do a reverse if Malaysia announces all is well," he said. The market was uncertain but many felt that given the close economic links, Malaysia and Singapore could resolve the issue, he added.
"This rise in dollar/ringgit is inducing Malaysian exporters to come out and sell," said the head of dealing at a European bank in Kuala Lumpur.
He said the exporters' perception was to use this situation to sell the dollar, as the ringgit was still headed for higher ground once this issue was resolved, he said.