Don’t expect a resurging Singdollar by the end of 2016, say analysts

Fed uncertainty is choking the SGD.

With a myriad of depreciatory factors on the Singapore dollar’s horizon, the city-state’s currency is basically clawing through a losing battle. Analysts are also saying the usual suspects are the reason why the once-vigorous Singdollar will eventually succumb to the USD by the end of next year.

According to analysts from BMI Research, among the headwinds blowing past the struggling Singdollar are poor external demand conditions, a tepid growth outlook for global EM’s, and continued uncertainty regarding the US Federal Reserve’s interest rate policy.

BMI Research also cited that the MAS’s stance on monetary policy as a factor.

“The MAS has also adopted an increasingly dovish stance on the Singapore dollar (the central bank utilises the SGD as its main monetary policy tool), easing the unit's appreciatory slope against its trade-weighted basket of currencies in both January (at an unscheduled meeting) and October (at its second bi-annual meeting),” BMI Research said.

Meanwhile, while the SGD was able to regain some of its losses against the USD after the MAS’s appreciatory slope reduction, BMI said it has since re-entered a longer-term depreciatory trend, leading to a weaker SGD.

“Singapore's modest growth outlook and a lack of inflationary forces could provide the MAS with additional room to ease over the coming months, potentially even before its scheduled meeting in April 2016,” BMI Research said.

BMI explains that reducing the SGD’s appreciatory slope against peer currencies is also one way to bolster Singapore’s export sector.

“However, the SGD's real effective exchange rate (REER) remains elevated in historical terms (see chart) at a time when the city-state's exporters are also struggling with structural factors owing to the government's tightening of foreign labour policies,” BMI Research said.

“The MAS will likely look to retain a supportive stance for Singapore's harder hit industries, meaning that the central bank is unlikely to be concerned if the SGD continues to slip in REER or nominal effective (NEER) terms against its peers over the coming year,” they added.