How Singdollar will fare against other currencies in 2016

Two faces of Spain - a well-groomed man and a beggar woman. This has been a turbulent year for the euro as the Greek debt crisis once again came to a head and the European Central Bank launched a massive bond-buying programme to breathe life into the
Two faces of Spain - a well-groomed man and a beggar woman. This has been a turbulent year for the euro as the Greek debt crisis once again came to a head and the European Central Bank launched a massive bond-buying programme to breathe life into the region's fragile economy.PHOTO: AGENCE FRANCE-PRESSE

It has been a volatile year for currency markets worldwide. Economics correspondent Chia Yan Min looks at how some key currencies performed against the Singapore dollar this year and what the outlook is for 2016.

US DOLLAR

The greenback has been gaining ground against the Singdollar and other regional currencies over the past year in anticipation of the United States Federal Reserve's first interest rate hike in almost a decade.

Analysts say the US dollar will continue strengthening, as the Fed is likely to raise interest rates further next year and this is seen as a plus for the greenback, given the US economy's gradual recovery.

One US dollar could buy about S$1.37 at the start of this year. This is expected to rise to S$1.45 next year, said Mr Kelvin Tay, regional chief investment officer for Southern Asia Pacific at UBS Wealth Management.

EURO

This has been a turbulent year for the euro as the Greek debt crisis once again came to a head and the European Central Bank (ECB) launched a massive bond-buying programme to breathe life into the region's fragile economy.

This ongoing quantitative easing programme is likely to drive the euro lower next year, said Mr Heng Koon How, senior currency strategist at Credit Suisse Private Banking Asia Pacific. The ECB has indicated that it intends to continue quantitative easing at least until March 2017, he added.

The euro has fallen about 4 per cent against the Singdollar - one euro can now buy about S$1.54. Mr Heng expects this to fall further to S$1.45 over the next 12 months.

AUSTRALIAN DOLLAR

The Australian dollar weakened below parity against the Singapore dollar in July for the first time since the global financial crisis.

The once-mighty Aussie dollar has been battered by sliding global demand for the country's commodities exports, especially amid slowing growth in China. One Australian dollar can now buy about S$1.02. UOB currency strategist Peter Chia expects the Aussie dollar to weaken slightly or remain relatively stable against the Singdollar next year, as Australia's central bank is not likely to cut interest rates from already record-low levels.

"However, the biggest wild card for Australia in 2016 will be China, its biggest export partner and the world's biggest consumer of mineral resources," he added.

JAPANESE YEN

The Japanese economy, which has remained largely stagnant over the past two decades, briefly slid into a technical recession this year.

Despite this, the yen remained relatively resilient against the Singapore dollar, strengthening about 4.4 per cent since the start of the year. One Singdollar can now buy about 86 yen. The government is expected to persist with Prime Minister Shinzo Abe's programme to jolt the economy back to life.

Known as "Abenomics", the plan involves massive monetary stimulus, higher government spending and significant economic reforms.

Mr Kenneth Tan, forex manager at Phillip Futures, said Japan's central bank is likely to maintain ultra- low interest rates, given the weak economic outlook, and might even embark on further steps to stimulate the economy.

This means the Japanese currency is likely to weaken next year, reaching about 90 yen to one Singdollar by end-2016, he added.

KOREAN WON

The South Korean currency has been relatively stable against the Singdollar as Korea's economy staged a swift recovery from the Middle East respiratory syndrome outbreak. Still, the slowdown in China and generally tepid sentiment across the region will continue to weigh on the Korean won, said Phillip Futures' Mr Tan.

But since this weakness will be matched by an almost equally weak Singdollar, the exchange rate is expected to remain relatively stable.

One Singdollar can now buy about 832 won, and is expected to buy close to 820 won by the end of 2016, according to UOB's Mr Chia.

MALAYSIAN RINGGIT

The ringgit has been the the worst- performing currency in Asia against the Singapore dollar this year, said Phillip Futures' Mr Tan.

The Singdollar has surged almost 16 per cent against the ringgit since the start of the year as plunging commodity prices and negative news about state fund 1Malaysia Development Berhad weighed on the Malaysian currency.

Credit Suisse's Mr Heng said fundamental drivers for the ringgit remain weak. But the currency has been sold off significantly over the past year and is "rather undervalued", he said.

Unless things take a turn for the worse, the stalemate between weak fundamentals and an attractive longer- term valuation will continue to play out, he noted. One Singdollar can now buy about RM3.05.

OCBC currency economist Emmanuel Ng expects the exchange rate to continue hovering above RM3.00 next year.

THAI BAHT

The Singapore dollar has climbed almost 3 per cent against the Thai currency since the start of the year. One Singapore dollar can now buy about 25 baht. UOB's Mr Chia said that the exchange rate in 2016 will remain broadly similar to the second half of this year as a cautious economic recovery gathers momentum in Thailand.

The Thai economy is expected to benefit from a calmer political environment in 2016, accompanied by higher government investment and lower fuel costs for the private sector.

A version of this article appeared in the print edition of The Straits Times on December 28, 2015, with the headline 'Currency circuit's ups and downs'. Print Edition | Subscribe