SINGAPORE: The Singapore dollar began 2018 on a high note, with a rise to its strongest level against the greenback in two and a half years on Tuesday (Jan 2).
The local currency was last seen trading at 1.3301 per US dollar, gaining more than 0.4 per cent to touch its highest level since May 2015.
Apart from a retreat in the US dollar, latest growth data depicting a firm outlook for the Singapore economy added to the “positive spin” in the currency on the first trading day of 2018, said National Australia Bank's head of markets strategy and research for Asia Christy Tan.
Advance estimates released at the market open showed the Singapore economy expanded 3.1 per cent in the fourth quarter from a year earlier, beating the median forecast of 2.7 per cent in a Reuters poll.
“Apart from the fourth quarter GDP release that came in quite strong, Prime Minister Lee Hsien Loong’s comments over the weekend about growth reaching the top end of the official target also provided positive spin to the start of the year,” Ms Tan said.
In his New Year message on Sunday, Mr Lee said the economy was ending 2017 stronger than it started, with economic growth for the year at 3.5 per cent.
This full-year GDP estimate hits the upper limit of the Government’s revised growth forecast range of 3.0 to 3.5 per cent, and shows the economy picking up pace from 2 per cent growth in 2016.
Even though the fourth quarter GDP figure was a pullback from the previous quarter as growth in the manufacturing sector eased, economists, such as DBS' Irvin Seah, were upbeat that a broadening out in recovery could see the services sector “take over from the manufacturing sector as the main engine of growth in 2018".
This continued to fan expectations that the Monetary Authority of Singapore (MAS) may tighten monetary policy by strengthening the Sing dollar as early as April.
“We think there's a chance that they may tighten to a slight appreciation bias in April,” said Maybank Kim Eng Research’s economist Chua Hak Bin.
“The Sing dollar is already close to the top side of the policy band and there are signs that inflation could come in higher than what MAS is anticipating," he added.
ASIAN CURRENCIES SET FOR FURTHER GAINS IN 2018?
The Sing dollar was not the only Asian currency to gain ground on Tuesday, as the US dollar languished near a three-month low.
Elsewhere in the region, the Taiwan dollar was the biggest percentage gainer, rising 0.8 per cent against the dollar to a more than four-year high.
The South Korean won also soared to a more than three-year high against the US dollar, after North Korean leader Kim Jong Un said on Tuesday he was open to dialogue with the South.
The Chinese yuan was also firmer and hit a near four-month high against the greenback.
Market watchers that Channel NewsAsia spoke to believe that Asian currencies could continue their uptrend against the greenback this year, though gains may be tempered following a robust 2017.
For one, central banks in Asia are leaning towards tighter monetary policy, with the Bank of Korea becoming the first to do so last November after raising its benchmark interest rate for the first time since 2011.
“For the past two years when the Fed hiked rates, Asia did not take any action but we expect that to change this year. This will help some of the Asian currencies to gain a little bit more against the US dollar even after a strong 2017,” said ANZ’s senior strategist Irene Cheung.
“The global environment also remains constructive for Asia in terms of exports and we think the export rebound could have more room to go in 2018,” she added, noting that the Sing dollar, South Korean won, Thai baht and the Taiwan dollar are among those poised to strengthen against the US dollar.
Meanwhile, the outlook for the greenback remains “pretty mixed” despite the US Federal Reserve looking set to raise interest rates three times this year, according to National Australia Bank's Ms Tan.
“We still expect monetary tightening in the US but that’s data-driven. Inflation will have to show some form of support and markets will need to see some deliverables from US president Donald Trump’s economic policies," she said.
"The base case is for the US dollar to recover somewhat but we belong to the camp that the recovery could be delayed with the reforms getting waylaid somewhat."