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| Oct 7, 2007 | |
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THE FALLING U.S. DOLLAR
More bang for the buck
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| Singaporeans with children studying in the US and those planning to visit the country have reason to cheer. Bryan Lee reports | |
| By Bryan Lee | |
| WHEN banking executive Jenny Lee goes to the United States in December, she will find it harder to say 'no' to her teenage son's request to buy a remote-controlled model plane there.
After all, with the US dollar falling to 10-year lows, she will probably be picking up a few bags and shoes at factory outlets herself. 'Certainly if the currency falls further, it will encourage us to spend more as things will be cheaper then,' she says, adding that she is glad she and her husband picked New York over London when they planned their family trip a month ago. Mrs Lee, who anticipates further savings from hotel bills during the 21/2-week vacation, is one of many Singaporeans cashing in on the greenback's depreciation. With the exchange rate now at less than S$1.50 against the greenback, the weak US dollar is a boon to travellers to the United States as they can expect to save more than a few cents on their accommodation, restaurant and shopping bills. 'There's been a 10 per cent increase in interest in our US tour packages,' said SA Tours marketing manager Jenny Sim. 'Tours to more exotic locations like Turkey and Egypt have also become more popular as US dollars are used there.' Parents paying for their kids' education in the US are also cheering the greenback's fall. A pharmaceutical executive, who wanted to be known only as Mrs Shum, and whose daughter started attending Columbia Law School last month, says annual expenses for the Ivy League education are about US$65,000, including school fees. This works out to S$95,500, based on Friday's exchange rates. At the start of the year, when the decision to go to the New York-based university was made, the amount worked out was S$3,950 higher at S$99,450 because of the less favourable exchange rate then. Mrs Shum noted that with the weaker greenback now, studying in America does not cost much more than in Britain, where her daughter was studying for the past two years. The US dollar started the year at about $1.54 and had been fluctuating between that and $1.51. But an aggressive interest rate cut late last month by the US Federal Reserve triggered a sharp depreciation which sent the greenback below the psychological S$1.50 level, hitting a low of S$1.47 on Friday. The fall of a country's currency is typically the result of pessimism about its economy and it is no different here. Faced with housing market woes that sparked a global credit crunch, it is widely accepted that the US economy is slowing down. Usually, any sign of slowdown in Singapore's biggest export market would be cause for concern about the local economy. But economists here are still upbeat that Singapore is on track for another good year, with some predicting that economic growth might hit 8.5 per cent this year. For one thing, the US dollar is depreciating against most of the world's currencies and not just against the Singapore dollar. This means that local exports will not lose out much in terms of competitiveness. Secondly, while a weaker greenback may trim US consumers' appetite for foreign-made goods, this effect tends to be small. 'If Americans buy less of Singapore goods, it's not due to US dollar weakness but more because of the slowing US economy,' said United Overseas Bank economist Jimmy Koh. And so far, apart from housing weakness, other data shows the US economy is not falling off a cliff, said OCBC Bank economist Selena Ling. Thirdly, the Singapore economy is much more diversified than it used to be, and is now less dependent on electronics exports. 'Other growth engines seem to be holding up well, like transport engineering and pharmaceuticals,' said Citigroup economist Chua Hak Bin. 'The investment boom in real estate and other sectors is also going strong, with or without the US economy,' he added. A weaker greenback might even have positive side effects for Singapore. Inflation from goods imported into Singapore should see some moderation as the US dollar is often used as a trading currency. A weaker US dollar should also help cool down the feverish greenback-denominated prices of oil and curb rising energy costs. Inflation, which clocked in at 2.9 per cent here in August, has hit 23-year highs, and any easing of price pressure will be welcome. Looking ahead, the US dollar is unlikely to stage a recovery any time soon. With the housing market still not out of the woods, the American economy may yet see the Fed making more soothing rate cuts. This will make investing in the currency and US assets even less attractive, which will further hold down the value of the greenback. So things appear to be pretty much hunky-dory for Singapore and Singaporeans. If you fancy a white Christmas with plenty of presents under the tree, it's probably not too late to book a plane ticket to Los Angeles, New York, or some other American shopping capital. But for those less predisposed to long flights, a simple click of the mouse can yield instant savings on that book or DVD, which will come in pretty handy as the season of giving approaches.
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