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26-01-2011, 07:11 AM
Business Times - 26 Jan 2011
Sing $ keeps climbing, chased by inflation
Analysts expect MAS to let currency become even stronger to counter rising prices
By EMILYN YAP
(SINGAPORE) The Singapore dollar rose against the US dollar yesterday - reaching a year-high during intraday trading - as sharp inflation here in December fanned expectations of further monetary tightening ahead.
Meanwhile, growing risk appetite around the world and weak economic prospects in the US added downward pressure on the greenback.
At 7pm yesterday, one US dollar fetched 1.2831 Sing dollars, slipping from a day ago. It had bottomed at 1.2787 during the day, which is below the year- low of 1.2818, according to Bloomberg data.
Rapidly rising prices here have led some to speculate that the Monetary Authority of Singapore (MAS) could let the Sing dollar appreciate further to curb the trend.
Last month, consumer prices climbed 4.6 per cent year-on-year - the fastest increase since December 2008. That reading exceeded MAS's estimate last October: that the annual pace of consumer price index (CPI) inflation would reach 'around 4 per cent' by end-2010.
The central bank twice tightened monetary policy last year (in April and October) by allowing gains in the Sing dollar.
'MAS has been very active in trying to curb inflationary pressure,' said HSBC foreign exchange strategist Perry Kojodjojo. As a result, the December CPI data has 'increased market expectation that some additional tightening may be required'.
Citi economist Kit Wei Zheng foresees inflation staying high because of rising wages, commodity prices and other factors.
'With inflation to remain above MAS's implicit medium-term comfort threshold of around 2 per cent and possibly breaching the top end of 3 per cent, the risk of further monetary tightening in April remains alive,' he said.
According to estimates by Credit Suisse, the Singapore trade weighted index (TWI) has risen 0.6 per cent since Dec 23 or 24.
Inflation has gone up in recent months, and 'I think that between now and the MAS meeting in April, the Singapore TWI may continue appreciating at this kind of pace', said the bank's director of foreign exchange strategy in Asia Olivier Desbarres.
It is not just the Sing dollar that could rise against the US dollar on the back of higher inflation. Market watchers have also identified the Chinese yuan as an inflation play this year. For instance, RBS Coutts projects a 5-7 per cent strengthening of the yuan this year.
Other developments in the US and around the world have caused the US dollar to weaken, narrowing its gap with the Sing dollar.
The return of risk appetite - partly due to signs that the European Union could be doing more to control the sovereign debt crisis - could have prompted investors to sell the dollar.
'Typically, when global risk appetite is quite healthy, you see money going out of the dollar and into the 'risk' trades,' Mr Desbarres said.
The sustained weak outlook for the US economy has also capped demand for the greenback. 'Data in the US, particularly on employment, has not been strong enough for the market to be worried about the Federal Reserve cutting short its QEII programme,' he added.
The local business community's reaction to a rising Sing dollar is likely to be mixed, depending on whether the firms export or import products.
'Some members could have hedged against the Sing dollar's rise,' said Singapore Manufacturers' Federation secretary-general Gwee Seng Kwong. 'But it is better for the currency to be less volatile, otherwise it will be difficult for them to plan ahead.'
Sing $ keeps climbing, chased by inflation
Analysts expect MAS to let currency become even stronger to counter rising prices
By EMILYN YAP
(SINGAPORE) The Singapore dollar rose against the US dollar yesterday - reaching a year-high during intraday trading - as sharp inflation here in December fanned expectations of further monetary tightening ahead.
Meanwhile, growing risk appetite around the world and weak economic prospects in the US added downward pressure on the greenback.
At 7pm yesterday, one US dollar fetched 1.2831 Sing dollars, slipping from a day ago. It had bottomed at 1.2787 during the day, which is below the year- low of 1.2818, according to Bloomberg data.
Rapidly rising prices here have led some to speculate that the Monetary Authority of Singapore (MAS) could let the Sing dollar appreciate further to curb the trend.
Last month, consumer prices climbed 4.6 per cent year-on-year - the fastest increase since December 2008. That reading exceeded MAS's estimate last October: that the annual pace of consumer price index (CPI) inflation would reach 'around 4 per cent' by end-2010.
The central bank twice tightened monetary policy last year (in April and October) by allowing gains in the Sing dollar.
'MAS has been very active in trying to curb inflationary pressure,' said HSBC foreign exchange strategist Perry Kojodjojo. As a result, the December CPI data has 'increased market expectation that some additional tightening may be required'.
Citi economist Kit Wei Zheng foresees inflation staying high because of rising wages, commodity prices and other factors.
'With inflation to remain above MAS's implicit medium-term comfort threshold of around 2 per cent and possibly breaching the top end of 3 per cent, the risk of further monetary tightening in April remains alive,' he said.
According to estimates by Credit Suisse, the Singapore trade weighted index (TWI) has risen 0.6 per cent since Dec 23 or 24.
Inflation has gone up in recent months, and 'I think that between now and the MAS meeting in April, the Singapore TWI may continue appreciating at this kind of pace', said the bank's director of foreign exchange strategy in Asia Olivier Desbarres.
It is not just the Sing dollar that could rise against the US dollar on the back of higher inflation. Market watchers have also identified the Chinese yuan as an inflation play this year. For instance, RBS Coutts projects a 5-7 per cent strengthening of the yuan this year.
Other developments in the US and around the world have caused the US dollar to weaken, narrowing its gap with the Sing dollar.
The return of risk appetite - partly due to signs that the European Union could be doing more to control the sovereign debt crisis - could have prompted investors to sell the dollar.
'Typically, when global risk appetite is quite healthy, you see money going out of the dollar and into the 'risk' trades,' Mr Desbarres said.
The sustained weak outlook for the US economy has also capped demand for the greenback. 'Data in the US, particularly on employment, has not been strong enough for the market to be worried about the Federal Reserve cutting short its QEII programme,' he added.
The local business community's reaction to a rising Sing dollar is likely to be mixed, depending on whether the firms export or import products.
'Some members could have hedged against the Sing dollar's rise,' said Singapore Manufacturers' Federation secretary-general Gwee Seng Kwong. 'But it is better for the currency to be less volatile, otherwise it will be difficult for them to plan ahead.'
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