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Singapore dollar soars to levels last seen 3 years ago

THE Singapore dollar (SGD) continues to fly and is at levels last seen three years ago as global investors snap up local assets.

The SGD was quoted at 1.3256 on Monday morning, unchanged from last Friday, levels last seen in May 2015, according to Bloomberg. The greenback regained a little strength in the afternoon to 1.3317.

The SGD traded to a near three-year low of 1.3256 last Friday, weighed by US dollar (USD) weakness and improving risk appetite that is driving portfolio inflows into Singapore assets, said Maybank Singapore in a Monday note.

Already the Straits Times Index (STI) has hit a two-and-half year high of 3501.16 on Jan 4, while short-term Singapore government securities yields are mostly lower by 0.78-27.75 basis point from last week which we can infer would include foreign portfolio demand as well, it said. The STI ended Monday even higher still, up 22.7 points or 0.7 per cent to finish at 3,512.18.

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The positive sentiment for SGD, as well as other Asian currencies, is due to the synchronous global recovery which has emboldened investors; in market parlance, they are "risk-on."

The USD tends to be counter cyclical, which means when things are good, fund flows tend to go to other global assets.

OCBC global treasury research has forecast the SGD to hit 1.30 by end-2018.

"This is on the back of a wobbly USD, a resilient growth environment and supportive risk appetite, especially for Asian equities," said Selena Ling, OCBC head of treasury research and strategy.

With the SGD NEER (nominal effective exchange rate) already trading more than 1 per cent above its parity level, USDSGD may remain top-heavy in the near-term, she said.

"It remains to be seen if the US's tax reform and jobs act can turn the tide for the USD by raising US's growth and inflationary expectations further out," Ms Ling said.