Singdollar to hit 1.40 to USD later this year as trade tensions worsen: analysts
Singapore
THE Singapore dollar is poised to fall further to 1.40 per US dollar in the next few months as rising US-China tensions cloud growth prospects, analysts said.
The SGD was quoted at 1.3772 against the USD at 2.27pm but drifted lower to 1.3787 later in the day, according to Bloomberg.
The Ministry of Trade and Industry (MTI) downgraded Singapore's 2019 growth on Tuesday morning, saying the global growth outlook "remains clouded by uncertainties and downside risks", including an escalation of trade tensions between the US and its key trading partners especially China.
It narrowed its forecast range downwards to 1.5 to 2.5 per cent, from an earlier 1.5 to 3.5 per cent. This comes as the economy saw growth of 1.2 per cent in the first quarter of 2019 - the lowest growth rate in almost 10 years.
"The Singdollar has weakened in the last two weeks because of the trade war noise. We could see more weakness going forward if there's no positive development in the trade war," said Bank of Singapore (BoS) currency strategist Sim Moh Siong on Tuesday.
BoS is reviewing its forecast for the currency pair, initially at 1.36 for the next three months, but expects a weakening bias for the Singdollar.
DBS has forecast the USD/SGD to hit 1.40 by 3Q19, said Philip Wee, DBS Bank FX strategist.
"We have held this (1.40 target) since the start of the year; it wasn't easy especially after the Fed paused with a dovish tilt," said Mr Wee. In December 2018, the US Federal Reserve had signalled two interest rate hikes for 2019 but by March it said there would be no hikes this year.
Now, the MTI's downgrade also means Singapore's central bank might be less likely to tighten monetary policy in October, the analysts said.
In line with Singapore's weaker growth performance and outlook for 2019, DBS sees the SGD nominal effective exchange rate (NEER) retreating from the ceiling towards the centre of its policy band.
According to DBS' model, the USD/SGD policy band is estimated as follows: Top 1.4220, Mid 1.3940 and Floor 1.3670.
Another factor keeping the Singdollar under pressure is weakness in China's currency which could spill over.
"Asian currencies tend to be highly correlated with the Chinese renminbi. If the renminbi continues to depreciate, that would be a drag on the Singdollar," said Jeffrey Halley, senior market analyst at FX trading firm Oanda.
Fading hopes of a US-China trade resolution have hit China's currency of late, with some banks revising their forecasts for the currency lower as the yuan slumped to a four-month low last week.
Mr Halley thinks the USD/SGD could hit 1.40 in the next few months, and could go as high as 1.45 in the following six months.
He declined to share his position on the Singdollar, but said he is "extremely bullish" on the USD all year and there is no reason to short the greenback against Asian currencies yet.
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