SGD could weaken to 1.4 per USD by end-year: DBS

The currency is affected by heightening macroeconomic uncertainties.

The Singapore dollar is projected to weaken further and drop to 1.41-1.44 range per US dollar by the end of 2019, in line with the weakening Chinese yuan and Euro, according to an analyst report by DBS.

CNY and Euro is expected to weaken to 7.20 and 1.05-1.10, respectively

The trade war remains the main downside risk to SGD performance as China’s growth may hit below 6% in 2020 amidst negative spill-over effects into the US economy. Other factors include the higher US tariffs on EU goods, a possible no-deal Brexit on October 31 and a weak German economy, which could tip the Eurozone economy into recession.

“Unless the trade war tones down amidst more upside surprises in the rest of the world vs the US, our forecast for USD-SGD to end 2019 above 1.40. This projection is consistent with our view for the CNY to weaken to 7.20 and the euro to stay weak in a 1.05-1.10 range,” said Philip Wee, FX strategist for G3 & Asia.

However, if the China and Eurozone worsen to drive CNY and EUR weaker toward 7.25 and 1.00 respectively, USDSGD will be looking at a higher trading range of 1.41-1.44.

DBS added that the Monetary Authority of Singapore (MAS) is expected to ‘slightly flatten’ the slope of the Nominal Effective Exchange Rate (NEER) policy band, which would be to 0.5% a year from the present pace of 1%.

“The government, at this juncture, does not intend to respond with counter-cyclical fiscal measures such as an extraordinary budget. It will be monitoring to see if the weaknesses from the trade war have spread beyond the external and manufacturing sectors. Close attention will be paid to the labour market where the unemployment rate for residents has been at/above 3% since 4Q18,” Wee concluded.