Aussie-Sing exchange rate hits 11-year low on fears of central bank rate cut
Singapore
INCREASED market expectations that the Australian central bank will cut rates in the face of fallout from Australia's raging bush fires have pushed the Aussie unit down against its Singapore counterpart, with the cross-rate on Wednesday hitting its lowest since 2008.
Pundits also noted that the potential spread of the Wuhan virus outbreak and its impact on Asian economic activity has further undermined the very trade-sensitive Australian dollar.
The Australian currency at one point on Wednesday dropped to 0.9222 - its lowest since 2008 - against the Sing dollar. The currencies' cross-rate was 0.9234 at 6pm on Wednesday.
Samuel Siew, investment analyst at Phillip Futures, told The Business Times that the latest minutes of the Reserve Bank of Australia (RBA) suggests the central bank wants to continue to assess the evidence of how the easing in monetary policy is affecting the economy.
He noted that the Australian economy is already reporting lacklustre economic numbers, other than labour statistics. The fresh weakness brought about by the wildfire crisis has further increased the possibility of the RBA keeping the option of a February rate cut open.
He said: "The AUD has faced weakness since the start of 2020, as the wildfire crisis dampened market confidence. The extensive economic damage is expected to hurt (the) overall Australian economy and has also resulted in the AUD sell-off. Tourists are also avoiding Australia, reducing the demand for AUD."
DBS group research foreign exchange strategist, Philip Wee, said the bush fires down under have led to expectations for the RBA to lower rates by 25 basis points to 0.50 per cent at the next policy meeting on Feb 4. Also, the disaster has made it more doubtful that the Morrison government could deliver its election pledge to return the budget into surplus.
Oanda Asia-Pacific senior market analyst Jeffrey Halley also offered another factor that caused the Australian currency's weakness vis-à-vis the Sing dollar.
Mr Halley noted that the Sing dollar, along with regional Asian currencies in general, has been strengthening on the expectations that South-east Asian economies will experience a bounce-back in growth after the signing of the US-China trade agreement.
Mr Halley also commented that an escalation in the coronavirus problem will see the AUD/SGD cross-rate come under renewed pressure although Asian currencies will be sold as well.
Thus, it's hard that the AUD/SGD moves much lower than 0.9200 in the near term. "Another cut from the RBA in February with the signal of more easing to come, conventional or unconventional, should see another strong leg down in AUD/USD, meaning the AUD/SGD could track towards 0.9000 in the next couple of months."
Phillip's Mr Siew sees the Australian dollar coming under further pressure as the country continues to face domestic headwinds with economic data likely to remain soft for the next few quarters.
"While the AUD/SGD pair sees a 10-year low today, it may prove as a temporary support. Should this support be broken, more downside could persist for the AUD/SGD pair, with the next support being at 0.9060."
AxiTrader Asia-Pacific market strategist Stephen Innes entered the year with a favourable outlook for the Australian dollar as the global reflation trade sets sail, and he expects the currency to play catch-up to the yuan.
He said, however, it will take a shocker of a domestic employment number tomorrow to change that view.
Sim Moh Siong, currency strategist at Bank of Singapore, holds the view that the Australian dollar would stabilise in 2020, but he also thinks that a revisit of 2008's low of close to 0.9000 is possible. Disappointing Australian consumer confidence data has heightened nervousness ahead of the key Australian employment data tomorrow, Mr Sim noted.
