Singapore is looking stronger within an Asean context. Source: Wikimedia
A turbulent year for the Singapore dollar looks set to continue into 2016.
The US dollar strengthened against most other currencies this year on the back of the recovery of its economy, and expectations that the Federal Reserve will start raising interest rates to “normal” levels, which happened this month.
Meanwhile, the Singapore dollar dropped to a six-year low of around 1.43 against the US dollar in October before recovering to 1.41. The exchange rate was 1.32 on January 1, 2015.
The slowing domestic economy weakened the Singapore dollar and the devaluation of the Chinese yuan in August dragged it down.
Looking into 2016, analysts expect the city-state’s currency to weaken further as the recovering US economy and higher interest rates in Washington draw funds from Asean.
“For a start, I will think that the Singapore dollar will continue to weaken against the US dollar, at least for the first and second quarter of 2016. What this means is that we’re expecting the US dollar to the Singapore dollar to reach a high of around 1.46, by the middle of 2016,” Francis Tan, economist at UOB, explained. “But going forward, because of economic recovery in the US, it will likely go to stronger exports from Asian countries, particularly from Singapore.”
The currency is expected to cope better in 2016 than its regional peers such as the Malaysian ringgit and Indonesia’s rupiah, which are struggling with weaker commodity prices.
In 2015, the Singapore dollar rose to record highs against the ringgit and rupiah. The ringgit is Asia’s worst performing currency this year with observers expecting the rupiah to take that unwanted title next year.
“If you have a look at the long-term strategy of the Singapore monetary authority and also of the Singapore government, it has been to strengthen the monetary policy in line with economic growth. So it is not that their currency is weak,” said David Kuo, CEO of Motley Fool, Singapore.
Commodity producers will also be watching the oil and gas market for an indication of how Singapore’s economy will fare this year.
A looming item on the calendar is the Chinese renminbi’s inclusion in the International Monetary Fund’s (IMF) reserve basket of currencies in October.
Singapore’s stocks are set for a 15-per-cent fall this year, putting them in the same league as Greece. But Baring Asset Management and UBS Group AG say shares need to get even more competitively priced before they are willing to buy.
Commodity trader Noble Group and oil-rig builder Sembcorp Marine are down at least 46 per cent this year as raw-materials prices fell, while property declines and bad debts increase. Bloomberg said the only benchmark measure that had performed worse was the ASE Index in Athens, which was poised for a 24-per-cent plunge.
“While some value could emerge if Singapore drops another 10 per cent, there’s not a lot of things to be wildly excited about Singapore at the moment,” Soo Hai Lim, a Hong Kong-based money manager at Baring, said. “Cheap valuations aren’t a good enough reason why these stocks would deliver the kind of performance we’re looking for. The growth outlook is still quite soft for 2016.”