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Malaysian Ringgit Considered An ‘Oil-Based Currency’

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KUALA LUMPUR – Asia is home to more currencies than any other continent on the planet and because of this, there are a wide variety of options for forex traders. Today, we’ll go over just a few of the region’s currencies while looking at their past performance and future prospects.

The sentiment toward most Asian currencies is bearish – but some look better than others. The Thai Baht, for example, has been surprisingly strong over the past several months. In contrast, the Malaysian Ringgit has tanked.

While we’re on the topic, let’s examine why Thailand and Malaysia, two neighboring countries with similarly sized economies, each have a currency that has each performed in a completely different way from the other.

The reason for the Ringgit’s poor performance is rather simple. Malaysia’s economy, even if not completely reliant on, has a large dependence on the oil and gas industry.

In fact, the country is the largest producer of palm oil in the world and Petronas, its national oil company, pays around 40% of Malaysia’s federal budget through its taxes.

The Ringgit can be considered an “oil-based currency”. As prices fall below US$50 a barrel, the value of exports decline, Malaysia’s tax-base is weakened, the current account surplus narrows, and the Ringgit underperforms as a result.

Thailand’s case is a bit more complicated. The country suffered a military coup in early 2014, but while this normally would frighten investors and lead to a lower baht, Thailand’s currency has instead been one of Asia’s best performing.

The reasons for this include everything from Thailand’s large tourism industry which has suffered far less than oil prices have, to weak export data over the past several years.

While the latter is not a good thing for the Thai economy, it has helped the Baht perform better than the currencies of some of the more export-dependent countries in Southeast Asia – most of which suffered a large spike of falling exports in 2014, rather than Thailand’s gradual decline. – TalkMarkets

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