Just several weeks ago, it cost approximately MYR3.00 to get AUD1.00. I know this because I needed considerable amount of Australian dollar soon and I have been watching the exchange rate between the two currencies very closely to figure out when will be the best time for me to purchase the Australian dollar in bulk.
Since then, the Australian dollar has lost over 16% of its value compared to the ringgit. As a direct result, I found whatever cost I need to bare in Australia went down by the same percentage.
The decline is spectacular because of its suddenness as well as the fact that the last time the Malaysian ringgit fared so well against the Australian dollar was over 5 years ago. For this week alone, the dollar lost 8% of its value; on the day after the rate cut was announced, at maximum, it lost 6% of its value compared to the ringgit.
This is definitely a chance for me to buy up Australian dollar cheaply.
I am unsure if I should wait since I am unsure if the Bank Negara would keep the Malaysian rate at its current level. With inflation moderating and the economy slowing down, the Bank might be tempted to reduce the rate. If the interest goes down, the ringgit would likely see some depreciation against the Australian dollar.
Also, with the impressive coordinated rate cuts across the world yesterday, the ringgit has appreciated markedly against the British pound sterling and the Euro, among economies saw a rate cut.
But for those interested in the economic implication rather than my networth, does this mean the Malaysian economy is doing good?
That is hard to say because the exchange rate is not a good measure of economic health. Especially in the case between the Australian dollar and the Malaysian ringgit, it is clear that the rate differential plays a huge part in the depreciation of the Australian dollar rather than the health of the Malaysian economy per se. Indeed, the cause of the depreciation is the confidence crisis faced by the Australian economy and less to do with improvement of confidence in the Malaysian economy on general. This causal relationship becomes more convincing when the Australian dollar is depreciating in large magnitude against its trading partners.
This is an important factor to remember the next time you heard anybody trying to pass off the strengh of the ringgit against any currency, including the US dollar, as a reflection of the Malaysian economy. The relationship between the two is not quite so simple. Before believing that person, among other things, check out what is happening in the other economy first. In other words, check the various indicators of the real economy.
9 replies on “[1803] Of the dramatic decline of the Australian dollar against the Malaysian ringgit”
[…] demand. On the contrary, this crisis has serendipitously brought me considerable fortune, thanks to the collapse of the Australian dollar. But I am not prepared to test my luck any farther than I have done at the […]
Aussie economic outlook: http://www.ipa.org.au/news/1697/forget-intervention-let-the-correction -do-its-job
re: forex – I was listening to this podcast, and the guy said, “We’re all sick, but the strength of the currency determines who is relatively less sick.”
HAHaha
best if you buy AUD around this week before it strengthens further… with commodities prices not going up in at least the next few weeks (unless some catastrophe hit the world)….
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1. Should Members of Barisan Nasional converge to form a Single MULTIRACIAL Party?
2. Who do you want as the new Youth Chief for UMNO?
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Rajan R,
IMHO, forex are work on a direct supply demand way between two currency, and there is no direct connection between them. When USD soar agaist RM, it doesn’t mean AUD will soar against RM. If during the same period, a huge amount of AUD buying RM, you will see RM goes up against AUD, but USD remain strong against RM.
Rajan,
I don’t think the BNM would do anything with respect to the Australian dollar either. But the BNM may cut the rates with the general uncertainty to the Malaysian economy as the background.
buy (at least) half!
I’m not sure about the rest of Asia, but Australia nearly always follows Wall St.
Considering the ASX 200 rose yesterday because the Reserve Bank cut interest rates by 100 basis points, This is quite scary, considering Australia is relatively unaffected by the toxic US mortgage debt.
To be perfectly honest, I don’t think Bank Negara would do anything: it would seem the AUD is falling in general in terms of its value. For one, for the first time in years, the AUD and the SGD are at near-parity (SGD 1.02 to each AUD 1.00) – indicating something’s wrong with AUD. The rate of the MYR against the USD, on the other hand, have dipped (it’s now around 3.50 MYR to each USD, compared to around 3.43 MYR to each USD a month ago, and 3.2 in April).
Considering Australia is not a significant export market, it is unlikely Bank Negara would react to the depreciating AUD.