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.