UBS tipped the Singapore dollar to strengthen over the next six months, retracing its recent weakness against a resurgent U.S. dollar.
“A strong U.S. dollar could persist in the near term, considering the divergence between strong U.S. economic data versus weak data in other regions such as Europe and Japan,” it said in a note last month. “However, as this divergence starts to narrow over the coming months, we expect the U.S. dollar to pare back some of its recent gains.”
It added that despite the potential for U.S.-China trade tensions to pressure regional currencies in the near term, it still expected the risk of a full-blown trade war was “contained.”
With the Singapore dollar managed on a trade-weighted basis, it should appreciate once the U.S. dollar resumes its broad weakening trend, it said. UBS also tipped support for the currency to come from the Monetary Authority of Singapore ahead.
“While U.S. dollar strength could persist in the very short run, we expect the dollar/sing exchange rate to resume a downtrend over the
next six months, as global growth regains momentum and prompts the MAS to accelerate the pace of Singapore dollar NEER appreciation later this year,” it said.
“We expect further tightening by the MAS in October thanks to above-trend economic growth and a widening positive output gap,” UBS said.
UBS said that it favored “active exposure” to the Singapore dollar, noting that it maintained a long-Singapore dollar, short U.S. dollar position in its Asia tactical asset allocation strategy.
Its three-month, six-month and 12-month dollar/sing forecasts were 1.30, 1.28 and 1.26.
As part of its intra-Asian foreign-exchange strategy, USB said it was also maintaining a long Singapore dollar, short Philippine peso position, noting the trade should perform well in a tough macro backdrop as the peso has weaker fundamentals.
The dollar/sing was at 1.3653 at 11:33 P.M. SGT on Tuesday.