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Singdollar forecasted to average S$1.365 against USD in 2019: Fitch

FITCH Solutions Macro Research on Tuesday said it has revised its average forecast for the Singapore dollar this year to S$1.365 per US dollar from S$1.35, and S$1.35 per US dollar in 2020.

The research firm also expects the Singapore dollar and US dollar pair to trade "broadly sideways" within the S$1.345 per US dollar and S$1.385 per US dollar level until October, with further range trading expected thereafter.

"Moderate weakness" of the Singapore dollar relative to the US dollar is expected to be driven by the economic differential between Singapore and the US, and markets pricing in prospects of the Monetary Authority of Singapore (MAS) easing in October.

In the next three to six months, Fitch Solutions said market participants would likely increasingly price in the possibility that the MAS would ease monetary policy in October.

This is by reducing the slope of the Singapore dollar nominal effective exchange rate (S$NEER), along with pricing in expectations of a "dovish Fed".

Fitch Solutions had revised its previous view that MAS would remain "on hold" after accounting for concerns expressed over a weakening outlook for trade and the global economy.

For the next six to 24 months, Fitch Solutions is maintaining its long-term expectations for the Singapore dollar to be "resilient" amid external backdrop improvements in the event of a possible US-China trade deal, and as Singapore's fundamentals "remain relatively robust".

Its views also factor in expectations of improvements in Singapore's net exports in 2020 – resulting in stronger growth in 2020 – with real GDP growth expected to rise to 1.7 per cent in 2020, from a previous forecast of 0.9 per cent in 2019.

"Beyond FY2019/20, we expect the government to continue to seek fiscal consolidation, which could be helped by a possible GST hike which is set to increase from 7 per cent to 9 per cent at some point between 2021 and 2025," Fitch Solutions added.

Fitch Solutions is part of Fitch Group, which also owns Fitch Ratings. Their research and commentary are independent of each other.