Singapore dollar jumps, shares up on Fed's dovish stance on rates

SINGAPORE - An unexpectedly dovish stance by Federal Reserve Chairman Janet Yellen sent the Singapore dollar jumping on Thursday morning as it reversed course against the US dollar, while stocks also tracked Asian markets higher.

The Sing dollar was trading at $1.3768 against the US dollar at 9.21 a.m this morning. Last night it traded at 1.3929 - its weakest since May 25, 2010, when it hit $1.4185.

One-day chart of Singapore dollar against US$

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As of 9.21 am, the Sing dollar weakened to 119.98 on the yen, from 121.15 on Wednesday; while the euro recovered to 1.0847 from 1.0624.

Singapore shares tracked a strong lead from US shares, which climbed after the US central bank said data suggest economic growth has moderated, fuelling speculation it won't be in a rush to raise interest rates. The Standard & Poor's 500 Index rallied 1.2 percent to 2,099.26 in New York.

Phillip Futures investment analyst Howie Lee said he believes the Fed changed tack because "the current FOMC make-up is more dovish than last year."

"Bearing in mind this is the first projection put forth by 2015's FOMC, and the 2015 members are more dovish than 2014," he said. Mr Lee added that a September rate hike looks more likely now.

The Fed dropped an assurance it will be "patient" in raising interest rates, but indicated that doesn't necessarily mean the central bank will tighten monetary policy in June.

The US central bank also said higher interest rates in April are unlikely and it won't tighten until it is "reasonably confident" inflation will return to its target and the labour market improves further.

Fed officials lowered their median estimate for the federal funds rate at the end of 2015 to 0.625 per cent, compared with 1.125 per cent in December forecasts. The median estimate for the end of 2016 declined to 1.875 per cent from 2.5 per cent, according to the Federal Open Market Committee's quarterly Summary of Economic Projections.

"I suppose the dovish tone came about because she also mentioned that `wage growth is not a precondition for a rate hike,'" remisier Alvin Yong said.

“We are still expecting the Singapore dollar to fall to 1.41 to 1.42 by year end, because the Monetary Authority of Singapore (MAS) is likely to ease monetary policy further in April,” he said. This is due to lower- than-expected inflation and output data suggesting the economy is slowing and facing growing deflationary pressures.

Mizuho Bank maintained a neutral stance due to the latest downbeat Singapore exports data for February.

Mr Lee said he sees the Singapore dollar falling to 1.42 to 1.45 by year end due to the dovish Fed guidance. Previously he saw the Singapore dollar falling to 1.50.