Singapore Dollar Faces Longest Drop as China Fuels Easing Wagers

  • Currency to weaken to S$1.47 by year-end, analysts forecast
  • MAS may widen band if currencies get volatile: BNP Paribas

Nirgunan Tiruchelvam, an equities analyst at Religare Capital Markets in Singapore, says he’s been reducing his exposure to the local dollar by boosting investments in the U.S. currency since the middle of last year. The timing couldn’t have been much better.

The Singapore dollar is set for a record fourth annual decline against the greenback after tumbling 6.6 percent last year, its worst performance since the Asian crisis in 1997. The city’s central bank might ease this year as China, Singapore’s biggest trading partner, struggles to prop up its slowing economy, analysts at Australia & New Zealand Banking Group Ltd. and BNP Paribas SA said.

“The Singapore dollar may weaken further,” Tiruchelvam said. “I have increased my exposure to the U.S. dollar as a preemptive move in the last six months.”

Analysts predict the Singapore dollar will depreciate to S$1.47 versus the greenback at the end of the year, according to the median estimate in a Bloomberg survey. That would be the longest streak of annual losses in data compiled by Bloomberg from 1982.

The currency was at S$1.4329 per dollar at 11:37 a.m. in Singapore, after tumbling this month to S$1.4444 against the greenback, the weakest level since September 2009. China’s central bank kicked off 2016 with four days of weaker yuan fixings, sparking a global equity rout on concerns the nation’s economic slowdown is worsening.

ABN Amro Bank NV lowered on Jan. 14 its year-end estimate of the Singapore dollar to S$1.52, from S$1.50, as it expects China to gradually depreciate the yuan against the currencies of its trading partners.

Costlier Exports

“A weaker yuan does make Singapore’s exports to China a bit more expensive,” said Roy Teo, senior currency strategist at ABN Amro in Singapore. “The bias is still toward a weaker Singapore dollar.”

Singapore’s non-oil domestic exports fell more than expected in December amid slumping shipments to China.

The Monetary Authority of Singapore guides the currency against an undisclosed basket of currencies from its major trading partners and competitors, with the yuan having the largest weighting after the U.S. dollar and Malaysian ringgit, according to BNP Paribas.

The monetary authority may widen the band within which it steers the local dollar if the currencies of its major trading partners and competitors become “extremely volatile,” said Mirza Baig, head of foreign-exchange and interest-rate strategy for Asia Pacific at BNP Paribas.

The central bank intervenes in the market to keep the rate within an unspecified band and changes the slope, width and center of that band when it wants to adjust the pace of appreciation or depreciation of the local dollar.

Policy Action

There is scope for the MAS to ease at the first of its two scheduled meetings this year in April as a renewed slump in oil prices threatens to delay a recovery in inflation and China’s slowdown hurts the island’s economy, said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd.

“The Singapore dollar will weaken,” Goh said. “Implicit in that is some kind of policy action over the course of this year.”

The monetary authority eased its exchange rate policy for a second time last year in October, saying weakening prospects for global growth would pose “headwinds” in the coming months.

Stamford Management Pte, which oversees $250 million for Asia’s wealthiest families, still favors the U.S. currency as the firm expects the Singapore dollar to weaken to S$1.50 this year, said Jason Wang, its chief executive officer in the city. The family office started switching its assets into the greenback from the local dollar about three years ago, he said.

“The mentality is still to buy the U.S. dollar on any weakness,” Wang said. “I still believe S$1.50 is attainable, given the acute weakness in key economic areas for Singapore.”

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