Outlook on currencies

ST ILLUSTRATION: MIEL

It appears that the Singapore dollar will no longer be among the world's strongest currencies in the near future, says Mr Sam Phoen, a co-founder of investment-management firm Wateram Capital.

As a result, it might be prudent for investors to diversify their holdings, moving from a pure Singdollar case to include assets in other currencies, such as the United States dollar, Australian dollar and sterling.

U.S. DOLLAR AND GOLD

The outlook for the greenback has strengthened for the year, says Mr Philip Wee, who is senior currency strategist at DBS group research.

"Unlike in 2013-15, the dollar is not rising from quantitative-easing policies weakening the yen and euro, but from a stronger outlook for America," he notes.


ST ILLUSTRATION: MIEL

Mr Phoen says that the greenback is likely to remain strong with higher US rates and President-elect Donald Trump's new policies. Thus, gold is expected to continue to underperform.

OCBC

economist Barnabas Gan says that one major factor influencing gold prices is the strength of the US dollar.

"With the Fed set to gradually increase rates, the dollar should strengthen accordingly, putting downward pressure on gold prices," he says.

"However, if interest rates don't rise as quickly and if the dollar doesn't strengthen as much as has been forecast, then there will be less downward pressure on gold prices."

EURO

The euro is trading at 14-year lows against a strong greenback. Given the continued slow growth in Europe, the outlook for the euro remains bleak, says Mr Phoen, who feels that a break below parity against the US dollar is likely.

STERLING

The sterling has suffered a great deal since Brexit, and is likely to continue to underperform the US dollar as Britain works out its exit strategy. However, the sterling could recoup its losses against the euro with populism sentiment now spreading slowly to the rest of Europe, notes Mr Phoen.

YEN

The Japanese currency could continue to weaken, slipping a little more to the low seen in 2015 of around 125 yen to the US dollar. Overall, the level is likely to be between 105 yen and 125 yen to the greenback for the year, says Mr Phoen.

YUAN

China's currency will continue to face depreciation pressure with incessant capital outflows.

"How far it will fall in 2017 will be limited by the Politburo's desire to maintain price and political stability in China, and political pressure from the US. Barring a hard-landing scenario in China, the yuan is likely to outperform most other Asian currencies," says Mr Phoen.

RINGGIT

The Malaysian authorities are taking steps to stem the ringgit's decline, notes Mr Phoen. Measures include pressing banks not to trade the ringgit non-deliverable forward market and encouraging repatriation of offshore earnings.

"The looming elections would also put some pressure on the ringgit. Overall, it is likely to decline a little more against the US dollar, but should remain broadly steady against the Singdollar, with a new base at above RM3 per Singdollar," says Mr Phoen.

SINGDOLLAR

As Singapore's open economy slows and it moves to reinvent itself for the next phase of growth, its currency is likely to face depreciation pressure, in line with the depreciation in the currencies of its trading partners. In terms of the greenback, the rate is likely to hit $1.50 to the US dollar in the first half of the year.

AUSSIE DOLLAR

Australia's currency is one that Singaporeans have a keen interest in, particularly those with investment properties there. It is likely to be strongly supported against the Singdollar, and the rate could go as high as $1.10 per Aussie dollar this year.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on January 01, 2017, with the headline 'Outlook on currencies'. Print Edition | Subscribe