The Singapore dollar is expected to fall further against the greenback, said most experts, even as the US Federal Reserve indicated yesterday that it could soon cut interest rates.
A weaker currency would make imports more expensive in Singdollar terms, while boosting demand for tradable goods and services made here.
Fed chairman Jerome Powell said at the US central bank's June meeting that officials felt the case for a reduction had strengthened, citing the trade stand-off with China and weak inflation. He added that the Fed would "act as appropriate" to support growth.
That alone was enough to galvanise local investors, who drove the Straits Times Index up 0.8 per cent to 3,314.51.
It was the same story across the region, with markets in Australia, China, Hong Kong, Japan, Malaysia and South Korea all ending in the black. The central banks of Japan, Australia, the Philippines and Indonesia held their rates steady, but hinted at further policy easing.
A key impact of any US rate cut could play out in the currency markets, given the greenback's central role in global trade.
That was already on display yesterday. The rate cut talk hit the US dollar, which fell against a range of currencies, including the South African rand, Canadian dollar, South Korean won and the Indonesian rupiah.
The Singdollar was up 0.5 per cent to 1.3561 against the US dollar at 8.04pm yesterday, according to Bloomberg. However, most experts here still expect the local currency to weaken against the greenback despite the expected Fed rate cuts.
UOB's head of markets strategy, Mr Heng Koon How, is expecting the Singdollar to trade towards 1.40 or 1.41 by early next year, in line with the bank's expectations last month that the USD/SGD will enter the second half of the year heading towards the 2018 peak of 1.3875.
"The main reason is that the local economy is slowing down, with lower inflation and a contracting Nodx," said Mr Heng, who expects the Fed to cut rates twice this year, in September and December.
Mr Kelvin Tay, UBS Global Wealth Management's regional chief investment officer, estimates that the Fed will likely cut rates next month instead. He expects the greenback to trend sideways in the near term as he thinks the markets are now pricing in a very high probability for the Fed to cut rates. He also anticipates the Singdollar to weaken for the next three months, with a USD/SGD forecast of 1.37.
DBS Bank FX strategist Philip Wee maintains that the Singdollar will fall to 1.40 later this year.
His view is that the US data is not weak enough to warrant a July cut, and is instead expecting rates to be cut in September and December.
"Our Fed cut view implies that the SGD policy may be eased in October," said Mr Wee. "If the Fed cut eventually comes on a global recession, USD/SGD is expected to spike higher like in 2001 (during the dot.com bubble burst)."
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, expects the USD/SGD to be at around 1.38 at the end of the year. "The market may already have largely priced in the Fed cuts, so there is some room for disappointment," she said.
Maybank's head of forex research, Mr Saktiandi Supaat, had a more sanguine take on the Singdollar. He said that if the Fed were to ease rates as early as next month and signal further cuts, it would be positive for riskier assets and lead to a stronger SGD vis-a-vis the USD.
"We could see the pair moving towards 1.34 levels if the USD softness persists in 2019," said Mr Saktiandi.