Expectations of Fed lift-off delay behind Sing dollar's rise: analysts

Singapore

MARKET expectations that the US Federal Reserve will delay its first interest-rate hike in nine years until after September are likely behind the Singapore dollar's recent strengthening against the US dollar and several other currencies as traders unwind positions, analysts said, though they added that the appreciation is unlikely to last long.

While the trend might continue at least until the end of this week's Federal Open Market Committee meeting, the market's focus will rapidly move on to the Monetary Authority of Singapore's (MAS) October policy meeting, analysts noted, cautioning the risk of Sing-dollar easing has risen.

The Sing dollar has strengthened from around 1.43 to the US dollar last Wednesday to 1.40 on Tuesday, its strongest since Aug 27. The move works out to a gain of roughly 2 per cent over the past seven days.

For the Malaysian ringgit, the Sing dollar edged up about 1.2 per cent, from RM3.05 last Wednesday to RM3.07 on Tuesday. Its climb against the Indonesian rupiah was sharper at 2.9 cent over the same period, from around 10,001 rupiah to around 10,287.

Analysts said the Sing dollar's recent strength was likely due to a flight to safety, given the weakness in the greenback amid expectations of a delayed Fed lift-off.

"Singapore is seen as a safe haven among regional currencies. Investors are discerning across emerging markets," said Maybank senior forex analyst Leslie Tang, noting that Singapore is the only country in South-east Asia with AAA credit rating.

He added there was uncertainty about the timing of the Fed's rate hike, with markets saying one thing and economists another. "People are being pulled in very different directions, so they're playing it safe for the time being."

Heng Koon How, senior forex strategist at Credit Suisse Private Banking & Wealth Management, said traders were likely trimming their long US dollar positions against Asian currencies across the board ahead of the Fed's Sept 16-17 meeting. A relief rally after the general election may have contributed, he added. "The SGD is seen benefiting from the continuation of the on-going responsible fiscal and economic policies that have served Singapore so well."

However, he said the Sing dollar's strength over the past week was likely temporary, given that chances of monetary easing at MAS's October meeting have gone up due to recent slow economic growth and weak inflation. "We continue to see that over a 12-month horizon, SGD will weaken towards S$1.45 to the USD."

Mr Tang said the Sing dollar might strengthen to S$1.39 against the greenback but if there is a rate hike in September then it may end Q3 around S$1.43. DBS senior currency economist Philip Wee thinks the Sing dollar could end up around S$1.42 against the USD by the end of 2015.

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