The Singapore dollar weakened on Tuesday but is forecast to be the best performing Asian currency in 2019. In Europe, political uncertainties have driven funds into the Swiss franc, elevating its price. The SNB has re-affirmed its commitment to market interventions, which means EUR/CHF at Fr1.1 will be a difficult nut to crack.
2018 was a solid year for the Singapore dollar. Against a strong US dollar, Singapore’s currency lost only 2 percent of its value; against the euro, it gained 3 percent; against the Australian dollar, it gained 8.5 percent.
Though, in most cases, the New Year has brought minor reversals for the Singapore dollar — in Tuesday’s trading, USD/SGD (S$1.359) reversed from a 5-month low and AUD/SGD (S$0.969) continued to push away from 10-year lows — the outlook for the Southeast Asian currency remains healthy.
Assuming no serious escalation in trade tensions between the US and China, nor a major downturn in the global economy, either of which could be a hammer blow to a trade-dependent country like Singapore, the Singapore dollar will likely appreciate further in the year ahead.
In a recent interview, an analyst at Singaporean bank OCBC said that the “confluence of an uncertain Fed and a stabilization in China,” to begin in the second quarter of 2019, would “allow for a more sustained [Singapore dollar] uptrend.” The analyst forecast USD/SGD at S$1.30 at year-end.
In a recent Bloomberg survey, experts said that the Singapore dollar would be the best performing Asian currency this year, and one of only 4 Asian currencies to increase in value relative to the US dollar.
Against what should be the worst performing Asian currencies — the Indonesian rupiah, the Thai baht and the Philippine peso — significant Singapore dollar appreciation can be expected.
In Switzerland, per an interview on Monday with SNB Vice Chairman Fritz Zurbruegg, interest rates will remain negative for a good deal longer.
“We still need negative interest rates and a readiness to intervene in the currency markets,” Zurbruegg told Swiss broadcaster SRF.
Given “highly valued” franc exchange rates and increased uncertainties, “there is no reason to change our monetary policy,” he added.
In spite of the SNB’s extremely-loose monetary policy — Swiss interest rates are the world’s lowest, at -0.75 percent — the franc has gained value over the past year against all bar two of the other G10 currencies. The most important of franc exchange rates, EUR/CHF, was trading on Tuesday afternoon 6.5 percent lower than last April’s highs, at Fr1.122.
European traders have favoured the franc in recent months as Brexit and Italian budgetary concerns have weighed on the other major European currencies, the pound and euro, and as haven demand has increased amid falling equities prices and signs that the global economy is slowing down.
Most experts expect the SNB to leave its monetary policy unchanged until the ECB hikes its own interest rates, which might happen in the fourth quarter.
While further franc appreciation is possible in the near term, any decline in EUR/CHF to Fr1.1 will be met by significant support. According to researchers at UBS, this is the level that will spur SNB market intervention.
UBS is forecasting a slightly weaker franc in 6 months’ time, at Fr1.15 to the euro.