12 Jan 2015
USD/SGD uptrend not yet exhausted - UBS
FXStreet (Córdoba) - The UBS analyst notes there is room for USD/SGD rate to reach 1.38, followed by some stabilization around 1.35 due to lower inflation in Singapore and softening economic activity.
Key Quotes
"The strength of the US dollar against the Singapore dollar has outrun our forecasts. Ongoing weakness in the currencies of Singapore's main trading partners – the euro, Japanese yen, and Malaysian ringgit – is burdening the SGD".
"Since we believe this backdrop could persist in 1H15, there is room for the USD/SGD exchange rate to reach 1.38, followed by some stabilization around 1.35. The main reasons for this are materially lower inflation in Singapore and softening economic activity".
"We see risks that the Monetary Authority of Singapore (MAS) will flatten its guidance for the SGD appreciation on a trade-weighted basis".
"Hedging the SGD downside against the USD is advised. Moreover, we think the spike in short-term interest rates in Singapore should be followed by even higher interest rates in 2H15. As the US Federal Reserve hikes the Fed funds rate toward 1.25% by the end of 2015, the three-month Singapore interbank offer rate (Sibor) could reach 1.7% in 12 months, in our view".
"From a liability standpoint, investors could take advantage of and lock in the low Singaporean interest rates".
Key Quotes
"The strength of the US dollar against the Singapore dollar has outrun our forecasts. Ongoing weakness in the currencies of Singapore's main trading partners – the euro, Japanese yen, and Malaysian ringgit – is burdening the SGD".
"Since we believe this backdrop could persist in 1H15, there is room for the USD/SGD exchange rate to reach 1.38, followed by some stabilization around 1.35. The main reasons for this are materially lower inflation in Singapore and softening economic activity".
"We see risks that the Monetary Authority of Singapore (MAS) will flatten its guidance for the SGD appreciation on a trade-weighted basis".
"Hedging the SGD downside against the USD is advised. Moreover, we think the spike in short-term interest rates in Singapore should be followed by even higher interest rates in 2H15. As the US Federal Reserve hikes the Fed funds rate toward 1.25% by the end of 2015, the three-month Singapore interbank offer rate (Sibor) could reach 1.7% in 12 months, in our view".
"From a liability standpoint, investors could take advantage of and lock in the low Singaporean interest rates".