Singapore dollar continues to rise on accelerated US dollar profit-taking

Singapore - The Singapore dollar stayed on the rebound against the US dollar on Thursday in line with other currencies, reaching S$1.43 as dollar profit-taking gathers momentum.

At S$1.43, the Singdollar is up 1.4 per cent from S$1.45 on Tuesday, noted Philip Wee, DBS Bank senior currency strategist.

The dollar has been struggling since the waning days of 2016, and the profit-taking and correction is pretty much across the board, he said.

The dollar's index against a basket of six major currencies slipped to 102.20 after hitting a 14-year high of 103.82 on Tuesday, when a strong reading from a US manufacturing survey gave it a boost.

The Chinese yuan slipped a tad after it made its biggest daily gain in about a year in offshore trade on Wednesday, as the Chinese authorities took steps to shore up the currency.

The Thomson Reuters/Hong Kong Exchange index of the offshore yuan hit its highest level in almost six months, though the index for onshore yuan still stood within its ranges of the past few weeks.

The offshore yuan gained 1.3 per cent on Wednesday, hitting a one-month high of 6.8658 per US dollar. It last stood at 6.8883.

"The whole rally has been on Trump growth and interest rates and Fed hikes . . . the position has been pretty extended," said Mr Wee.

The US Federal Reserve raised interest rates last month and expectations are for three more hikes in 2017. The dollar and stock markets have rallied strongly since Donald Trump won the US presidential election on Nov 8 on reflation hopes but also on data which shows the US economy is growing nicely. Mr Trump takes office on Jan 20.

While bullish on the dollar over the medium term, the market is worried that it has run up too much too quickly, said a DBS research report.

But the market is also seeing more numbers coming out which show that other economies aren't doing too badly, for example, Singapore's latest growth data, said Mr Wee.

On Tuesday, Singapore surprised with 1.8 per cent 2016 growth, surpassing even the government's own 1-1.5 per cent range estimate.

"There's a balancing effect right now, I would say the market is evaluating - it's not so one-sided, the rest of the world is tagging along," said Mr Wee.

The Singdollar has had a fantastic 24 hours, with the greenback falling against it from 1.4500 to 1.4320, said Jeffrey Halley, OANDA senior market analyst. "In the process, breaking support around 1.4430 and 1.4350. These now become resistance. Support is at 1.4320 and then 1.4270 and 1.4220," said Mr Halley.

Mr Wee said that the broad trend of further dollar strength hasn't changed. "The US optimism is high."

DBS forecasts four hikes by the Fed in 2017 and the Singdollar to fall to S$1.48 by the fourth quarter of the year.

This article was first published on Jan 6, 2017.
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