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Surprise strengthening for Singapore dollar | 30 March 2015

Surprise strengthening for Singapore dollar | 30 March 2015

Anticipation surrounding upcoming policy moves is not negatively affecting the Singapore dollar as expected, amid reports that it’s actually strengthening rather than weakening.

Although many analysts believe Singapore’s central bank meeting in April will result in easier monetary policy, the Singapore dollar is beating everyone’s expectations. Since the middle of March, the Singapore dollar has strengthened against the US dollar – a true comeback considering it had recently slumped to lows the likes of which have not been seen in more than four years.

The Singapore dollar started to strengthen after the Federal Reserve made a negative statement on the condition of the US economy; all global markets were thrown into disarray, reports

Leong Wai Ho, senior regional economist at Barclays in Singapore, noted that earlier in the year, investors were buying the US dollar over the Singapore dollar in order to prepare for a US rate increase in June, as this would make greenback more attractive.

However, the Federal Reserve stated on March 18 that investors should not act on rates just yet. It also lowered its economic outlook significantly, which had a negative impact on anyone who believed or hoped that borrowing costs would increase sooner rather than later.

Investors are also reluctant to hold Singapore government bonds, thanks to the risk of volatility. It does not help that the Federal Singapore’s central bank undermined the local central bank earlier this year by easing monetary policy out of the blue. Investors do not seem to be worried about the possibility of the Singapore dollar weakening again, though. Instead, they believe that once the Fed normalises monetary policy, the volatility of rates will rise.

Jonathan Cavenagh, currency strategist at Westpac in Singapore, commented: “To me it makes sensible policy to go for more easing. Will the trend [of US dollar strength] continue? That seems like a fairly good estimate at this stage.”

On March 27, the Singapore dollar traded for S$1.3688, and the ten year government bond climbed to 2.243 per cent.

Barclay’s Mr Leong believes he is alone in thinking the central bank will not change monetary policy in April. He states that if it does not hold firm, it will give the impression the government is worried about growth.

“There is no need to ease monetary policy to speed up that depreciation,” he added.

Although Singapore’s market is heavily influenced by the Federal Reserve, investors will closely watch the Monetary Authority of Singapore, which will next meet April 13.

The views expressed in this post are those of the author and are not necessarily those of Qube Global Software. All facts are verified where possible directly by the author.

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Philippa Cunningham
Posted by Philippa Cunningham
+44 (0) 20 7726 3200.
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