Singapore Dollar Risky as Economy Opens
The Singapore dollar looks set to remain under pressure as global headwinds outweigh the benefits of easing the nationwide lockdown.
The U.S. dollar-Singapore dollar pair failed to break below technical support at its one-month low in the FX market. This suggests its next move could well be higher.
The nation expected data this week to show its economy contracted by 1.8% y/y in the first quarter. This was according to the median estimate of economists.
The Southeast Asian currency has been pressured by the negative impact of the pandemic on the Singaporean economy. It is down by over 5% against the greenback so far this year. The government projects a gross domestic product shrink of 1%-4% in 2020.
Standard Chartered Plc. strategist Divya Devesh said they see significant challenges ahead for the Singapore dollar. This is given, as Singapore is one of the most open economies in the region.
Moreover, he said, given the subdued outlook for global growth, global trade, and a sharp decline in global manufacturing PMI’s, they expect the recent improvement in Singapore’s non-oil domestic exports to reverse course.
The nation’s exports unexpectedly increased for a second month straight in April. This is mainly due to a jump in pharmaceuticals, according to data released on May 18. The shipments tend to be volatile and fluctuate across the months, the government said.
What Else Keeps the Singapore Dollar Under Pressure?
The Monetary Authority of Singapore has signaled its willingness to let the currency weaken at its March 30 policy decision. This was in a bid to support the trade-reliant economy.
This is also what keeps the local dollar under pressure in forex.
The MAS doesn’t set rates but instead, as a policy tool, it manages the currency against major trading partners.
The nominal effective exchange rate of the Singapore dollar is the focus of the MAS. It began in May, at a similar level to where it was at the time of the March policy decision. This is suggesting that there is still room for the currency to weaken further.
Forex trading reports that the U.S. dollar-Singapore dollar pair traded at 1.4222 on Friday. It was more than 1% above its April 30 low of 1.4070 and has failed to breach this support. This leaves the door open for a slow grind higher toward the technical resistance as was the April 6 high of 1.4417.
Pressure on the currency should still be alleviated somewhat as the domestic economy starts to pick up. Singapore is allowing more businesses to reopen on June 2.
That will let the active proportion of the economy increase by three-quarters. This will be after a nationwide lockdown cuts transmission of the coronavirus among citizens and permanent residents.
