Singapore dollar loses ground to the greenback

The local currency was not helped by weak manufacturing data.

IG Markets Singapore said:

The Singapore dollar continues to lose ground to the greenback as it edges up to $1.2322 this morning.

The local currency wasn’t helped by weak manufacturing data released last night which showed a third consecutive month of contraction.

This will only heighten speculation that the MAS will slow the rate of appreciation of the Sing dollar against the USD to make exports more competitive.

However, the financial regulator has also the added dilemma of stubborn inflation, which it will not want to stoke.

Generally the mood towards Asian risk currencies is more upbeat however they are still vulnerable to headline risk, which is currently centred on Spain.

DBS Group Research meanwhile noted:

With Australia “surprising” with a 25 bps rate cut yesterday, attention is now turning to Canada and Singapore, the other two non-European countries whose sovereign debt are rated triple-A by all three rating agencies.

The currencies of these three countries became alternative safe havens in the third quarter when the US dollar was dogged by QE3 prospects and fiscal cliff worries.

In Singapore, unless numbers improve dramatically for September, weak manufacturing/export data in July and August had increased prospects for the republic to enter a technical recession in 3Q12.

With inflation now below 4% YoY, there is less reason for Singapore to keep the appreciation pace of its exchange rate at an accelerated pace.

We expect the monetary authority to flatten the slope of the upward sloping Singapore dollar nominal effective exchange rate policy band to 2% a year from the current 3% pace. Our forecast for USD/SGD remains at 1.26 by end- 2012.