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SGD surges, interest rates ease on weak US jobs data
THE Singapore dollar continued to rally on Tuesday, rising 1.5 per cent from last Friday following the release of the latest US jobs data report which surprised by being lower than expected.
The SGD stood at S$1.3565 at 1.35 pm Tuesday, according to Bloomberg, and is now back to levels a month ago. Last Friday, it was quoted at S$1.3770.
Local interest rates have eased very slightly along with the stronger SGD. The three-month swap offer rate (SOR), a benchmark for commercial loans, was down at 0.95 per cent on Monday from 1.03 per cent last Friday. The three-month Sibor or Singapore interbank offered rate, used to price home loans, was fractionally lower on Tuesday at 0.999 per cent, from 1.002 per cent on Friday.
Last Friday's weak US jobs data report has set off a bull market in not just currencies, but in equities and commodities as well.
The report of 38,000 jobs in May was way off market expectations of 160,000, and the worst since 2010.
The next US payrolls report is on July 8 and the greenback could continue to weaken until then.
Sentiment in the US dollar is weak as financial markets reduced bets that the US Federal Reserve will tighten monetary policy in the coming months, said Roy Teo, senior FX strategist at ABN Amro Bank.
"We expect USD/SGD to have a downside bias towards 1.34 in June. As we head nearer towards next US payrolls release on 8 July, the US dollar should receive some support," said Mr Teo.
"An outstandingly bad US jobs figure has set the stage for weaker equities, a weaker US dollar, and stronger gold this week, as markets recalibrate their views of the US economy and rate hikes," said a DBS report on Monday.
It has caused some analysts to revive the "R-word" - to be more precise, the spectre of recession, DBS said. "A June policy rate hike is now off the table," it said.
Fed funds futures are pricing only a 4 per cent chance of a June hike. And the odds for July have also been slashed to 27 per cent, notwithstanding recent comments by Federal Reserve policymakers, it said.
So how long SGD strength would last is far from certain, not least due to policy measures.
An already strong SGD against the NEER basket has moderated expectations for further SGD appreciation, said Victor Yong, interest rate strategist at United Overseas Bank. "The S$NEER (nominal effective exchange rate) is hovering around its strongest levels since the Monetary Authority of Singapore's decision to move to a neutral policy stance of zero per cent appreciation in April.
ABN Amro's Mr Teo said: "Sustained strength in the S$NEER will increase the risk that the MAS may shift the mid-point of policy band lower later this year in October."
Strong SGD impacts export growth which remains weak, he said.
"No doubt about half of exports are re-exports and hence one could argue the negative impact of strong SGD is mitigated. But we can't deny strong SGD still makes Singapore exports less competitive."
OCBC Bank's Selena Ling said that the bank's end-2016 forecasts for the three-month Sibor and SOR and USD-SGD are 1.15 per cent, 1.3 per cent and 1.40 respectively.
Last month, the Ministry of Trade and Industry said that it was keeping full-year growth forecast at 1-3 per cent when it released the full estimates for first-quarter gross domestic product.
But importantly, it said that global growth prospects have dimmed, which changes its stance made just three months ago. In February, it had said that global growth this year was expected to be slightly better than in 2015.
"Since then, the global economic outlook has softened further, with global growth for the year now expected to be broadly similar to that in 2015," said Loh Khum Yean, permanent secretary of MTI, at a media briefing.