US$ weakens amid worries over Trump's policies

The US dollar may regain its strength if the Trump administration increases the pace for infrastructure spending.
The US dollar may regain its strength if the Trump administration increases the pace for infrastructure spending.PHOTO: EUROPEAN PRESSPHOTO AGENCY

Singdollar has risen 0.7% against greenback since Jan 20; recovery helps STI

The United States dollar has weakened against the Singdollar and other Asian currencies following the inauguration of United States President Donald Trump.

The slide comes as worries mount over the new administration's protectionist stance and growing uncertainty over its fiscal policies.

Warnings issued by Mr Trump and US Treasury Secretary nominee Steven Mnuchin last week, that the "excessively strong" greenback may have a negative effect on the US economy, are expected to continue to weigh on the currency.

The Singdollar's recovery has helped draw more funds into the local stock market, which has gained 5.5 per cent so far this year. The Singdollar has risen 0.7 per cent against the greenback since Jan 20.

The Straits Times Index has climbed strongly so far this year in step with the stronger Singdollar, which hit a high of 1.4517 on Dec 28, a level last seen in June 2009.

Warnings issued by Mr Trump and US Treasury Secretary nominee Steven Mnuchin last week, that the "excessively strong" greenback may have a negative effect on the US economy, are expected to continue to weigh on the currency.

"This could signal fund flows back here that have dominated stock trading action of late," KGI Securities trading strategist Nicholas Teo said.

Whether this can last depends in part on whether the US dollar's strength returns as infrastructure spending plans pick up pace, or if the US Federal Reserve raises interest rates faster.

The Singdollar and most other Asian currencies slid against the greenback after Mr Trump's shock election win in November, as the dollar rose on bets that his proposed fiscal stimulus and tax cuts would boost growth and inflation, and could lead to the Fed raising rates faster than expected.

But Capital Economics economist John Higgins said he disagreed with Mr Mnuchin's assertions that the US dollar is "very, very strong".

"Of course, Trump may push for a weaker dollar, even if it isn't particularly overvalued. As with many areas of policy, his aim remains unclear. But we doubt that he will have much success.

"On the contrary, we forecast that the dollar will resume its rise before long, as the Fed tightens by more than most expect," he added.

Some analysts believe the dollar's pullback, seen since the start of the year, could be temporary.

"President Trump's actions overnight suggest things can quickly turn," Mr Christopher Wong, senior FX strategist for Maybank, told Reuters.

Mr Trump's signing of executive orders on Tuesday to smooth the path for the controversial Keystone XL and Dakota Access oil pipelines suggests that infrastructure plans are under way, Mr Wong noted.

The dollar's strength could return if infrastructure spending plans continue to pick up pace, he added.

A version of this article appeared in the print edition of The Straits Times on January 26, 2017, with the headline 'US$ weakens amid worries over Trump's policies'. Print Edition | Subscribe