Singdollar rally continues while Sibor falls on US$ weakness

THE Singapore dollar rose to S$1.4058 against the US dollar on Friday from Thursday's S$1.4149 on continued weakness of the greenback on realisation that US President Donald Trump's tax reforms will take time and also because expectations of a March interest-rate hike by the US Federal Reserve fade.

The three-month Sibor (Singapore Interbank Offered Rate) fell on Friday, losing 0.001 to 0.93905 per cent; the mortgage benchmark rate has been weakening since it reached a year-high of 0.98521 per cent on Feb 13.

"Downward pressures on short-term SGD interest rates stem largely from USD weakness," said Eugene Leow, DBS Bank interest rate strategist. "This became more apparent in recent days when the USD/SGD broke below 1.41."

At S$1.4058, the SGD is back to early-November levels when it began to weaken following the election of Mr Trump. The SGD hit a 12-month low of S$1.4517 on Dec 28, 2016, before recovering, as reality began to sink in that the Trump-induced rally may not be straightforward and that the Fed may be less gung-ho in raising rates.

"The realisation that the FOMC (Federal Open Market Committee) was not unanimously in favour of a March rate hike (from the Jan FOMC minutes) and a fading of Trump-related stimulus hopes probably lent the USDSGD move a leg down," said Selena Ling, OCBC Bank economist.

Wednesday's Fed minutes, which showed that there was less urgency among voting members to raise interest rates, also kept the US dollar depressed against its major rivals, said Reuters.

Comments by US Treasury Secretary Steven Mnuchin also suggested that Mr Trump's phenomenal tax plans may take time to materialise.

Mr Mnuchin told Fox Business Network that any policy steps the Trump administration takes would likely have a limited impact this year, and told CNBC that he wanted to see tax reform passed before Congress's August recess.

Still most do not think the SGD rally can last.

"This retracement may sustain in the near term," said Ms Ling. "But assuming the FOMC and Trump deliver in 2H, we could see USD strength come back, albeit from a lower base," she said.

The USD weakness is an opportunity to buy, not sell as the trajectory for higher USD remains, said Peter Chia, United Overseas Bank FX strategist.

"It's very vulnerable now for USD longs, but we say buy on dips," said Mr Chia. The USD is driven by the Fed hikes and the fundamental strength of the US economy, he said.

The US economy is projected to grow 2.5 per cent this year, compared to 1.6 per cent in 2016.

The forecast for the SGD is to fall to S$1.48 by year-end, said Mr Chia.