May 31, 2016

    Singdollar weakness may continue for months ahead

    THE Singapore dollar is expected to stay weak in the coming months, weighed down by the region's sluggish economic growth and a further weakening of the Chinese yuan.

    Analysts painted a cautious outlook for the local currency, even though the United States dollar may not have much room left to extend its recent rally.

    The Singdollar stood at $1.3743 against the greenback on Friday night after a 1.9 per cent gain by the US dollar in the past month, due partly to market expectations of an imminent American interest rate hike.

    The US dollar run is likely to be temporary, ABN Amro said in a report last week, adding: "If the Fed was to hike rates this year, it will be gradual. A 25-basis-point hike this year is now roughly priced in by financial markets."

    But this does not mean that the Singdollar, which is managed against a basket of major currencies such as the US dollar and the euro, will take off from here.

    "Where I think the Singdollar weakness will come in is through the US dollar strength against the yuan. The Chinese economy is still slowing down and there is unlikely to be any rebound from the recent stabilisation," Bank of Singapore senior currency strategist Sim Moh Siong told The Straits Times.

    He added: "We forecast the Singdollar to be at $1.40 against the US dollar in six months and $1.43 in 12 months."

    BMI Research also puts the Singdollar at $1.40 against the American currency by the end of the year.