Once again, 2016 has given us proof that anything can happen and will happen in a democracy. If you thought Brexit was going to be the biggest unexpected vote this year then, well, clearly you lived on my Facebook feed.
But you know what? It's happened, and our own Prime Minister Lee Hsien Loong has sent along congratulations in a Facebook post. PM Lee also referenced the Brexit vote, which reminded us of how the British pound crashed following that result.
So how has the US Dollar been affected?
I heard the US Dollar crashed! Let's go shopping on Amazon!
Interestingly, while the cheaper pound got us rushing to London's Oxford Street… nothing seems to have happened to the USD/SGD exchange rate. In fact, those watching the currency markets might have discovered that the US Dollar strengthened against the Singapore Dollar! Hold off on those online shopping sprees for now.
In fact, while the currency's recovery has already begun, there's still no denying that the US dollar has dropped in value. We can see that most clearly from the way it has significantly weakened against the Japanese yen, a notoriously risk-adverse currency.
What can we in Singapore do about the falling US Dollar?
We're honestly in a situation that has little precedent, and therefore no way to say for sure what may happen. But based on what we do know, here's three ways we predict the falling US Dollar will affect us in Singapore.
1. Housing loan interest rates will stay low
We've been forecasting a rising SIBOR since the start of the year, but you know what? A whole bunch of things that were supposed to happen didn't happen. The US is once again going to be a tease and not raise the Fed interest rates in December as previously expected. Keeping the interest rates low is the smart thing to do in a US economy that needs all the help it can get.
That has direct implications for our housing loan rates in Singapore, as the Fed interest rate is directly linked to the SIBOR, which governs many of our property loans. In a less direct manner, it will even affect fixed deposit interest rates, keeping them low and thus keeping fixed deposit-linked home loan rates low as well.
But while it may seem like the perfect time to apply for a SIBOR-based home loan package, the truth is the past two years has taught us that SIBOR is still a very volatile interest rate. So when looking for a home loan package, you should still take precautions and stick to one that has a shorter lock-in period. Better still, look for one that doesn't have a lock-in period at all.
Still confused about how SIBOR may affect your home loans? Contact our mortgage specialists for a free consultation.
2. Should we start buying US Dollars? You know, buy low and sell high!
Yes, the US Dollar suffered a hit once the unexpected happened, yet it recovered almost fully within a couple of hours. Essentially, everyone who thought the end of the world was going to happened decided to stop panicking and just went on with their lives.
But this uneasy equilibrium can only last so long. Without clear policies - when your slogan is "Make America Great Again", it helps to indicate exactly how you're going to do that - everyone is just waiting with bated breath for what comes next.
And if there's one thing currency markets don't like, it's uncertainty. We know that all too clearly from the Brexit vote, and half a year later we're still enjoying the cheaper British pound. It remains to be seen how the US Dollar will fare in the coming days. My guess is, the longer it takes for policies to be formulated, the weaker the US Dollar will get.
So, hold off your eagerness to buy the US Dollar now, especially since it seems our own Singapore dollar is also weakening. Start filling your Amazon wishlist though, because when Black Friday comes around in slightly over two weeks, you can bet that the discounts won't be the only reason your imports are cheap.
But that said, there is something you should consider starting now, which brings me to my third point.
3. Start investing using methods like dollar-cost averaging
Markets around the world were hit as international investors tried to figure out how to deal with the result of the US election. But this creates an opportunity for small-time investors looking to take advantage of the uncertain situation by using methods like dollar-cost averaging.
The value of dollar-cost averaging is in hedging your bets by ensuring that you regularly invest the same amount regardless of whether the market is doing well or not. Sure, it may not be as profitable as putting in a larger sum of money as soon as a market dips in the hope that it will recover soon, but you also avoid the risk of the market crashing altogether. Learn more about dollar-cost averaging here.
One option would be Maybank Kim Eng's Monthly Investment Plan. It allows you to invest in several major share counters in the US. Another option would be to invest in a US stock index via platforms like Fundsupermart.
The article first appeared on MoneySmart
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