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THE Singapore dollar (SGD) has stabilised somewhat, recovering from the year's low on Tuesday and, with that, short-term interest rates have also eased.
On Thursday, the SGD rallied to S$1.4155, off the low of S$1.4297 in highly volatile trade along with other Asian currencies, as China worries continue to make markets jittery.
The 3-month swap offer rate (SOR) also eased to 1.46209 per cent on Wednesday, off Tuesday's high of 1.56409 per cent.
Sentiment on Asian currencies is highly volatile as the market deals with China worries and upcoming US Federal Reserve interest rate normalisation, said Eugene Leow, DBS Bank economist.
Chinese Premier Li Keqiang said on Thursday that the country's economic transformation is fraught with difficulties but sought to reassure international investors. "This is going to be a painful and treacherous process," Mr Li said in a speech to a World Economic Forum meeting in the north-eastern city of Dalian.
"So, ups and downs in economic performance are hardly avoidable," he added, calling that "natural" during a time of change, reported Reuters.
"China is not a source of risk for the world economy but a source of strength for global growth," Mr Li said, stressing that it accounted for about 30 per cent of world economic expansion in the first half of this year.
Meanwhile, Mr Leow said: "The pullback in SOR can be attributed to a slight strengthening of the SGD."
Further downside to the SOR can be achieved in the short term if USD/SGD consolidates further, he said. But for the longer term, SOR rates will probably still take direction from where USD rates head, he added. The markets also cannot decide when the US Fed will hike interest rates - some think it can be next week, others say global uncertainties will push the move to December.
Commerzbank technical analyst Axel Rudolp said that the SGD was expected to stabilise around S$1.4170 but if "it breaches S$1.4297, the next high is S$1.45 . . . perhaps by the end of the year . . . (in the) short term, it should stabilise though."
Year-to-date, the SGD has fallen some 7 per cent against the US dollar, making it the fifth-worst among Asian units. The worst is the Malaysian ringgit, down 23 per cent; followed by the Indonesian rupiah, 16.4 per cent and Thai baht, 9.9 per cent.