Singapore dollar set for worst quarter since 2011 on easing bets

The Singapore dollar has tumbled 5.5 per cent against its US counterpart since the end of June, on course for its worst quarterly performance in four years.
The Singapore dollar has tumbled 5.5 per cent against its US counterpart since the end of June, on course for its worst quarterly performance in four years. PHOTO: THE NEW PAPER

SINGAPORE (BLOOMBERG) - Singapore's dollar is headed for its worst quarterly performance in four years amid speculation the central bank will ease policy as soon as next month to shore up growth.

The currency has tumbled 5.5 per cent against its US counterpart since the end of June as China unexpectedly devalued the yuan and the Malaysian ringgit tumbled to the weakest level since 1998.

Both of those currencies have similar weightings in the undisclosed currency basket the Monetary Authority of Singapore uses to guide the local dollar, according to Australia & New Zealand Banking Group Ltd.

The MAS, which reviews policy twice a year, next meets in October.

Singapore's currency slid to a six-year low on Tuesday (Sept 29).

"The Singapore dollar was really hit, not only by weakness in the domestic economy, but from weakness in the renminbi and Malaysian ringgit as well," said Khoon Goh, a strategist at ANZ in Singapore. "My sense is that the market is probably gravitating towards some form of easing by MAS in the October meeting."

The local dollar slid to S$1.4335 per greenback on Tuesday, the weakest since September 2009. It was little changed on Wednesday at S$1.4250 as of 2.25pm in Singapore. The currency is poised for the worst quarter since it lost 6 per cent in the period ended September 2011. The MAS eased policy the following month.

ANZ, which is still finalising its forecast for the October MAS decision, predicts the Singapore currency will weaken to S$1.45 by year-end. Analysts have lowered their end-December predictions to S$1.44, from S$1.38 before China's yuan devaluation on Aug 11, according to the median estimate in a Bloomberg survey.

The MAS, which manages the economy through guiding the currency rather than setting interest rates, is poised to ease policy next month as the global-growth outlook has worsened since its April meeting, Credit Suisse Group AG analysts, including Michael Wan, an economist in Singapore, wrote in a report on Wednesday. Singapore's dollar will weaken to S$1.455 in three months and S$1.495 in a year, the analysts predict.

The local dollar slid 1.1 per cent on Jan 28 when the MAS said in an unscheduled announcement it would seek a slower pace of currency appreciation. That followed the European Central Bank's decision to introduce bond purchases and interest-rate cuts in Canada, Denmark and India.

The MAS guides the Singapore dollar against an undisclosed currency basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It doesn't disclose details on the basket, nor the band, nor the pace of appreciation or depreciation.

Singapore's worse-than-expected manufacturing contraction in August "significantly" raises the likelihood of a technical recession in the third quarter and a policy easing next month, Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore, wrote in a report last week. The economy contracted 4 per cent in the second quarter.

"Economic activity remains relatively slow, deflationary pressures remain significant, the property market has been deflating and standard valuation metrics suggest that the Singapore dollar has been overvalued," said Callum Henderson, the global head of foreign-exchange research at Standard Chartered Plc in Singapore. With global trade slowing, betting the Singapore dollar will weaken against the US currency "seems a good way to play that," he said.