The Singapore dollar fell to S$1.4436 per US dollar earlier on Thursday (Dec 15), its weakest since January, as a decision by the United States Federal Reserve to raise interest rates caused Asian currencies to slide against the greenback.
The Chinese yuan hit an eight-year low, while the Korean won slipped 0.8 per cent against the dollar, having fallen more than 1 per cent earlier on Thursday. The Thai baht slipped to a two-week low of 35.716 per US dollar.
At 3pm, the Singapore currency had come off its intra-day lows as traders sold the US dollar to book profits from the greenback’s rally.
Mr Goh Khoon, head of Asia research for ANZ, said in a research note that the Singapore dollar may have more scope to fall, given that its nominal effective exchange rate (S$NEER) is still estimated to be above the lower edge of the central bank’s policy band.
According to ANZ’s estimates, the S$NEER is now 0.4 per cent below the mid-point of the policy band, Mr Goh said. Most analysts estimate that the policy band likely allows the S$NEER to move 2 percent from the mid-point in either direction.
“There is still room within the policy band to accommodate further Singapore dollar weakness before the lower bound is reached,” he added. “With further policy tightening in the US to come and Singapore’s growth and inflation outlook subdued, we see the S$NEER testing the lower bound at some stage.”
Elsewhere, Chinese state-owned banks were seen selling dollars in the onshore foreign exchange market on Thursday, two traders said, on a day when the yuan fell to an eight-year low.
Chinese state-owned banks have offered dollar liquidity regularly over the past two months in what traders believe is part of efforts to support the yuan from falling too fast.
The outcome of the Fed’s policy meeting reinforces the outlook for further dollar strength, said Mr Heng Koon How, senior FX investment strategist for Credit Suisse in Singapore.
“We continue to stay negative on euro, negative on Chinese yuan, and mostly negative on Asian currencies,” he added.
The Fed’s 25 basis-point interest rate increase on Wednesday was widely anticipated by financial markets though they appeared to have been caught out by the central bank signal of three hikes in 2017, up from around two flagged at its September policy meeting.
The relatively hawkish Fed stance came as US president-elect Donald Trump takes over with promises to boost growth through tax cuts, spending and deregulation.
After the Fed’s decision, the US benchmark 10-year Treasury yield touched its highest level in more than two years, while the 2-year Treasury yield scaled a seven-year peak.
Such rises in US Treasury yields can erode the attraction of higher-yielding emerging market assets and lead to capital outflows from emerging markets. REUTERS