Greenback hits 10-month high against Singdollar

THE United States dollar has risen rapidly against the Singapore dollar, up from $1.23 to $1.26 in the last two weeks alone.

Experts say the greenback's quickfire surge against a range of currencies, including Singapore's, reflects the booming US stock market as well as fresh hopes the Federal Reserve will soon slow its stimulus measures.

A stimulus slowdown will lift the US dollar, as it would mean the Fed printing less money and possibly hiking interest rates, thus making it more attractive to hold the greenback.

The greenback is now at a 10-month high against the Singdollar, and is tipped to gain more ground in the current quarter before easing slightly by year-end.

"Improvement in US economic data has increased the expectation that the Fed could consider slowing down on the pace of bond purchases," said Phillip Futures investment analyst Lee Chen Hoay.

The Fed has been buying US$85 billion (S$106 billion) of bonds a month in a bid to inject cash into the system to kickstart the US economy. This loose monetary policy is called quantitative easing (QE).

Mr Lee said this expectation of a slowdown in bond purchases has caused the US dollar to flex its muscles against major currencies including the Singdollar.

According to Bloomberg data, the greenback has appreciated from $1.2289 to the Singdollar on May 8 to $1.2611 yesterday.

Another factor for the greenback's rapid rise is the bull charge on Wall Street.

Mr Wu Mingze, a market specialist at online foreign exchange trading service provider Oanda, said: "The US dollar has been gaining ground against all major currencies due to the rapid rise in US stocks."

Earlier this month, the Dow Jones Industrial Average stock index crossed the 15,000-point mark for the first time and hit an all-time peak. The index is now around 15,400.

Fed chairman Ben Bernanke was due to address the US Congress last night. His comments would have been keenly monitored for signs of whether the pace of QE will be adjusted.

UOB noted: "We think the US dollar strength could very well surpass the 'gradual appreciation' of the Singdollar in the overall scheme of things."

Thus, it expects the greenback to hit $1.27 against the Singdollar by the end of next month before easing to $1.25 by the end of 2013.

While the Singdollar has weakened against the US dollar, it has gained ground on other key currencies such as Australia's dollar.

A robust US dollar benefits Singapore manufacturers such as electronics firm Aldon Technologies, which buys raw materials and sells its goods using it.

Managing director Allen Ang said: "It's good for us that the US dollar is gaining momentum, as we sell US dollars to fund our Singapore operations."

But a stronger US dollar would hurt the bottom lines of businesses here which buy their goods from there. Mr Lee said: "The higher import cost could see businesses passing the increase to the consumers by raising prices."