Singapore dollar may fall further
The Singapore dollar is poised to weaken further as the escalating trade war between the United States and China weighs down growth in the export-dependent city-state.
Poor export data that landed on Friday underscore the downward pressure on the currency’s nominal effective exchange rate, which has quietly crept away from the upper end of the band that monetary policymakers use to keep Singapore on an even keel.
Revised gross domestic product figures due tomorrow are the next thing to watch for clues on the trajectory of the Singapore dollar, which has slipped about one per cent this month.
“Given the small size of the Singapore economy and the subdued outlook in the electronic sector, risk is for more weak economic data to come,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp.
“Potentially weak data may push Monetary Authority of Singapore (MAS) expectations towards a more dovish side.”
Larger declines in other Asian currencies caught in the crossfire between China and the US have deflected attention from the simmering signs of weakness in the Singapore dollar. A closer look shows that six-month forward discounts on the greenback against the currency narrowed to the tightest level in 16 months last week.
The International Monetary Fund warns that the risks to the economy are tilted to the downside and that MAS’ response to the challenge should be “data dependent”.
Analysts forecast a modest upward revision in first-quarter growth to 1.5 per cent, which would still leave it far below the five-year average of 2.9 per cent and offer little support for the currency.