SINGAPORE: With the possibility of fewer rate hikes likely setting the greenback on a “shakier footing” in 2019, market analysts said the Singapore dollar may be poised for a firmer year ahead.
The local currency is also set to receive some support with the Monetary Authority of Singapore (MAS) expected to stay the course on further monetary tightening, they added.
The US Federal Reserve on Wednesday (Dec 19) raised its benchmark interest rate – the fourth interest rate increase for the year and the ninth since it began normalising rates in December 2015 – while indicating that it expects to take it slow on further hikes in the face of plateauing US growth.
OCBC’s currency economists expect the Fed’s rate hike cycle to “enter its last legs by mid-2019” as the US central bank shifts towards “more flexibility and data dependency” when it comes to policy tightening.
Coupled with “weakening” economic fundamentals, the US dollar’s prospects could turn “considerably murkier” to be on a “shakier footing” next year, Mr Emmanuel Ng and Mr Terence Wu wrote in a note.
Echoing that, strategists from Maybank’s foreign exchange research team see the US dollar’s resurgence “running out of steam” amid a changing environment. Apart from fewer hikes and US growth momentum likely nearing its peak, other catalysts include risks from a potential government shutdown and the recent slide in crude oil prices.
What that means for the Singdollar could be gains, albeit modest ones, in the year ahead, analysts said.
“At this juncture, we think the USD-SGD may be biased higher in early-2019, before a confluence of an uncertain Fed and a stabilisation in China deeper into 2019 provides the preconditions for a more sustained downtrend in the USD-SGD,” wrote OCBC’s economists.
Similarly expecting the Fed to fire off a final rate hike by mid-2019 before taking a pause, ANZ’s senior Asia strategist Irene Cheung sees the US dollar holding up early in the year before losing ground around the end of the second quarter.
On the other hand, the Singdollar is backed by its “safe haven status” among other Southeast Asian currencies, she said.
Ms Cheung also reckons the MAS will slightly increase the slope of its policy band for the third consecutive time during its April meeting, with the economy holding up and core inflation nearing 2 per cent. The central bank has tweaked its exchange rate-based monetary policy twice this year.
“That explains why we are constructive on the Singdollar,” said the ANZ strategist, who expects “some downside” in the USD-SGD to 1.34 by mid-2019 before ending the year at 1.32.
The Singdollar was last seen trading at 1.37 against the greenback on Thursday after having lost about 3 per cent year to date.
Mr Stephen Innes, head of trading for Asia Pacific at Oanda, expects the local currency to strengthen "slightly" to about 1.34 per US dollar amid lingering risks in the global environment.
“The dollar will weaken but the (USD-SGD is) not going to go all the way down to 1.30. This is because of concerns about global economic growth, the effectiveness of China’s stimulus and an ongoing trade war that could still very much evolve,” he said.