Singapore dollar remains strong, back to November levels

Singapore - The Singdollar rose to S$1.4057 on Friday from Thursday's S$1.4149 on continued US dollar weakness on realisation that US President Donald Trump's tax reforms will take time and also because expectations of a March interest-rate hike by the US Federal Reserve fade.

The three-month Sibor, or Singapore interbank offered rate, fell - it lost 0.001 to 0.93905 per cent on Friday. The mortgage benchmark rate has been weakening since it reached a year high of 0.98521 per cent on Feb 13.

"Downward pressures on short-term SGD interest rates stem largely from USD weakness," said Eugene Leow, DBS Bank interest rate strategist. "This became more apparent in recent days, when the USD/SGD broke below 1.41."

At S$1.4057, the SGD is back to early November levels when it began to weaken following the US presidential election of Mr Trump.

The SGD hit a 12-month low of S$1.4517 on Dec 28, 2016, before recovering, as reality began to sink in that the Trump-induced rally may not be straightforward and that the US Federal Reserve may be less gung-ho in raising interest rates.

"The realisation that the Federal Open Market Committee (FOMC) was not unanimously in favour of a March hike (from January FOMC minutes) and a fading of Trump-related stimulus hopes probably lent the USDSGD move a leg down," said Selena Ling, OCBC Bank economist.

Wednesday's Fed minutes, which showed that there was less urgency among voting members to raise interest rates, also kept the US dollar depressed against its major rivals, said Reuters.

Comments by US Treasury Secretary Steven Mnuchin also suggested that Mr Trump's phenomenal tax plans may take time to materialise. Mr Mnuchin told Fox Business Network that any policy steps the Trump administration takes would likely have a limited impact this year and told CNBC that he wanted to see tax reform passed before Congress' August recess.

Graphic: The Business Times

Still most do not think the SGD rally can last.

"This retracement may sustain in the near term," said Ms Ling, adding that assuming the FOMC and Mr Trump deliver in 2H, we could see USD strength come back, albeit from a lower base.

The USD weakness is an opportunity to buy, not sell, as the trajectory for higher USD remains, said Peter Chia, United Overseas Bank FX strategist. "It's very vulnerable now for USD longs, but we say buy on dips."

The USD is driven by the Fed hikes and the fundamental strength of the US economy, he added.

The US is projected to grow 2.5 per cent this year. It was 1.6 per cent last year. The forecast is that by year end, the SGD will fall to S$1.48, said Mr Chia.

This article was first published on February 25, 2016.
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