Singdollar hits below 1.31 against weak greenback with sharp rally

It comes on expectations of deeper Fed rate cuts; SGD last closed below 1.3 in Nov 2014

- Claire Huang

The Singapore dollar has rallied to a high against a weaker greenback as investors look to widely expected cuts in interest rates by the United States Federal Reserve in the months ahead.

The rally comes on the back of market expectations that the Fed could go for deeper rate cuts.

The sentiment has triggered the US dollar's depreciation across the currencies of Singapore's major trading partners, especially the Japanese yen and South-east Asian currencies.

The Singdollar has strengthened some 3 per cent in the past month, crossing below the 1.31 level on Aug 19. It reached 1.3042 at 8.30am on Aug 21 and was trading at 1.3071 at 3.06pm local time.

The last time the Singdollar closed in trading below 1.3 was in November 2014.

DBS Bank's senior currency economist Philip Wee said USD/ SGD's lowest daily close was 1.2008 in Aug 2011, after the Great Financial Crisis of 2007. He said based on DBS' modelling, the floor of the USD/SGD policy band, implied from its Singdollar nominal effective exchange rate (S$Neer) band, has broken below 1.3.

"Hence, we are examining the possibility of USD/SGD dropping below 1.3 for the first time since 2014, unless we get a repeat of the shocks that propelled USD/SGD above 1.4 again," Mr Wee said.