Singapore Dollar Forecast to Extend Advance Against Sterling

UOB in Singapore have confirmed to clients the SGD is likely to extend recent advance against the British pound over the near-term.

The call comes as the Singapore dollar enjoys a period of outperformance against the likes of the US dollar and pound.

The Singapore dollar (SGD) has been gaining against the British pound since August - we have witnessed the pound to Singapore dollar exchange rate edge lower from a 2015 best at 2.232 in August to the present 2.13 levels.

Interestingly this coincides with a similar move in the GBP to AUD exchange rate suggesting that the SGD is trading in sympathy with the commodity-linked currencies.

Near-term the pound has recovered from the lows seen earlier in the week, but the outlook continues to favour the SGD it is said.

"The subsequent sharp rebound suggests that a short-term low is in place," says Quek Ser Leang at UOB in Singapore, "the current movement is likely part of a sideway trading range, likely between 2.1260 and 2.1420."

The crucial 2.1180 level was tested yesterday but GBP rebounded quickly from a low of 2.1165 confirming its usefulness as a point of support.

"Oversold short-term conditions could lead to a couple days of consolidation but as long 2.1450 is intact, the outlook is still viewed as bearish," says Leang.

UOB advise that the next support below 2.1165 is nearer to 2.1000 but the odds for a move to this level do not appear to be very high at this stage.

Singapore Dollar Gains Seen Across the Board

Helping push the pound sterling lower against the Singapore dollar will be moves in the headline USD vs SGD rate.

The Singapore dollar (SGD) has strengthened by about 2% against the US dollar and 1% against its trade weighted basket of currencies since the Monetary Authority of Singapore (MAS) monetary policy decision on 14 October.

The MAS reduced the slope of appreciation of S$NEER slightly as advance estimates show that the Singapore economy narrowly avoided a technical recession in the third quarter against market expectations of a 0.1% qoq contraction.

Economic growth in the second quarter was also revised higher from -4% qoq to -2.5% qoq.

Analyst Roy Teo at ABN Amro has told clients he is turning more positive on the Singapore dollar's outlook as a result:

"We think that core inflation will edge higher due to favourable base year effects. Hence the MAS is unlikely to shift towards a more dovish bias next year, supported by the view that global growth should gradually improve in 2016.

"As a result, we have revised our 2015 and 2016 year end USD/SGD forecast to 1.40 (from 1.44) and 1.46 (from 1.50) respectively. We have also closed out our short SGD view from our high conviction FX list, realizing a loss of 2%."