We published a bullish view on the Singapore Dollar today on Seeking Alpha. Below are some excerpts:
- The Singapore dollar looks cheap following its February selloff and the appreciation of the euro and yen against the U.S. dollar.
- While the MAS looks set to ease in April we expect them to shift to a neutral rather than a bearish stance, which we think is largely priced in.
- Real yield spreads continue to favour euro and yen strength which should support the SGD’s trading basket suggesting appreciation versus the dollar.
- A renewed selloff in Emerging Market currencies posesa threat to the SGD, we expect the currency to outperform the EM Currency Indexfollowing recent underperformance.
“The currency remains below the midpoint of the estimate of the MAS’s policy band, somewhere it has spent less than 25% of its time since 2000 according to Morgan Stanley estimates. The average distance from the band midpoint over this period has been 0.67%, a full percentage point above the current figure. We see room for the currency to return to the top half of its band causing appreciation against the U.S. dollar.”
“As the SGD is a managed currency its outlook versus the USD will be largely determined by the performance of its main non-U.S. trading partner currencies – EUR, JPY, CNY, and MYR. Looking at the recent collapse in the real yield differential between the U.S. and Germany and Japan – the main driver of short-term moves in USDEUR and USDJPY – there appears to be further for the dollar to weaken against the majors. This should provide room for the Singapore dollar to appreciate against the greenback.”
“Should we see a reversal in the US dollar’s recent weakness versus EM currencies, the SGD should naturally come under pressure. However, we expect outperformance in the currency relative to emerging market currencies. The following charts show the historically-tight correlation between the MSCI Emerging Currency Index (a total return measure) and the Singapore dollar from both a short- and long-term perspective. Given Singapore’s strong economic fundamentals in terms of large external and public savings, we do not expect this performance gap to be sustained over the long term.”
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