Sin­ga­pore $ drives Asia FX lower as MAS move may fan re­gional eas­ing

The Financial Daily - - INTERNATIONAL -

SEOUL: The Sin­ga­pore dol­lar on Wed­nes­day hit its weak­est in nearly four and a half years, driv­ing losses among emerg­ing Asian cur­ren­cies, as re­gional cen­tral banks may fol­low the citys­tate's un­ex­pected mon­e­tary pol­icy eas­ing to tackle de­fla­tion.

The Mon­e­tary Author­ity of Sin­ga­pore (MAS) re­duced the slope of its mon­e­tary pol­icy band ahead of its sched­uled re­view in April. The cen­tral bank also cut its in­fla­tion fore­cast for the year.

Sin­ga­pore man­ages mon­e­tary pol­icy by con­trol­ling the ex­change rate, rather than bor­row­ing costs, be­cause trade dom­i­nates the econ­omy.

The sur­prise move sent the Sin­ga­pore dol­lar to 1.3570 per US dol­lar, its weak­est since Au­gust 2010, on hedge funds sell­ing.

Malaysia's ring­git and Thai­land's baht also fell, re­flect­ing per­ceived risks that the cen­tral banks of those coun­tries could sur­prise with in­ter­est rate cuts later in the day.

"Bank of Thai­land is a po­ten­tial can­di­date. We see risks of a move today," said Jonathan Cave­nagh, se­nior FX strate­gist with West­pac in Sin­ga­pore, when asked if other cen­tral banks will ease.

South Korea's cen­tral bank is also ex­pected to cut its in­ter­est rate, he added.

A num­ber of cen­tral banks have eased their mon­e­tary pol­icy in re­cent days to cope with de­fla­tion and prop up economies, lead­ing to spec­u­la­tion that the US Fed­eral Re­serve could take

a dovish turn in its post­meet­ing state­ment af­ter this week's meet­ing. SIN­GA­PORE DOL­LAR An­a­lysts now as­sume the MAS's slope in the Sin­ga­pore dol­lar nom­i­nal ef­fec­tive ex­change rate (NEER) ap­pre­ci­a­tion is at 1 per cent per an­num, com­pared to their pre­vi­ously thought 2 per cent ap­pre­ci­a­tion.

They are re­vis­ing down the Sin­ga­pore dol­lar's tar­gets.

Andy Ji, Asian cur­rency strate­gist for Com­mon­wealth Bank of Aus­tralia in Sin­ga­pore, ex­pected more stim­u­lus in April.

"An­other re-cen­ter­ing is still on the cards. It may be pos­si­ble to ease fur­ther in April," Ji said.

MAS ear­lier said that it would con­tinue to stick with a pol­icy of al­low­ing the Sin­ga­pore dol­lar to ap­pre­ci­ate mod­estly and grad­u­ally against a bas­ket of cur­ren­cies, although it would re­duce the slope of ap­pre­ci­a­tion.

The city-state's cur­rency has been suf­fer­ing from a slug­gish econ­omy and slow­ing in­fla­tion. Some in­vestors had al­ready ex­pected the cen­tral bank to ease mon­e­tary pol­icy in the up­com­ing re­view in April.

The Sin­ga­pore dol­lar was the sec­ond-worst per­form­ing emerg­ing Asian cur­rency af­ter the Malaysian ring­git so far this year with a 1.9 per cent de­pre­ci­a­tion, ac­cord­ing to Thom­son Reuters data.

RING­GIT The ring­git fell, track­ing the weak­ness in the neigh­bour­ing Sin­ga­pore dol­lar.

The Malaysian cur­rency found some re­lief as in­vestors sold the Sin­ga­pore dol­lar against the ring­git. Still, the ring­git stayed un­der pres­sure on risks of a cen­tral bank rate cut later in the day.

Bank Ne­gara is ex­pected to keep its key in­ter­est rate un­changed at 3.25 per cent, as the coun­try's econ­omy re­mains at risk from a slump in oil prices and a weak­ened cur­rency, a Reuters poll showed.

BAHT The baht fell as off­shore funds and lo­cal traders, bet­ting a rate cut later in the day.

"What the MAS did today may put pres­sure on the BOT," said a Thai bank cur­rency trader in Bangkok.

In a Reuters sur­vey on Mon­day, the Bank of Thai­land was ex­pected to leave its pol­icy in­ter­est rate steady at 2.00 per cent. - Reuters

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