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Thursday, 13 November 2008
Singdollar ‘will slip to 1.80 against greenback’
The Singapore dollar is set to weaken sharply to $1.80 against the greenback within the next year, the leading United States investment bank Morgan Stanley has predicted.
The Singapore dollar is set to weaken sharply to $1.80 against the greenback within the next year, the leading United States investment bank Morgan Stanley has predicted.
Last night, the exchange rate was about S$1.50 to the US dollar.
Morgan Stanley believes Singapore, like many export-oriented nations, will experience greater weakness in their currencies than expected.
However, the Singapore Government is likely to endorse this currency weakness in order to support exports amid the global downturn, he said. A weaker Singdollar makes exports relatively cheaper.
Mr Stephen Jen, the US bank’s global head of currency research, made the prediction here yesterday at the Morgan Stanley Asia-Pacific Summit.
He said the weakening of the local unit will be the result of not only a resurgent US dollar, but also an aggressive policy by the Monetary Authority of Singapore (MAS) to protect the export-oriented Singapore economy during the global slowdown.
This is necessary to deal with what he called the ‘changing realities’ in the world economy led by the slowdown in China and contractions in the United States, Europe and Japan.
These changes are likely to lead to further weakness in export demand, on which Singapore’s economy is highly dependent.
He said: ‘Singapore exports will collapse like everywhere else, so I wouldn’t expect anything other than an aggressive reaction from the MAS.’
The central bank shifted to a neutral exchange rate policy last month amid a deep slump in exports.
If exports continue to weaken, economists expect the MAS to intervene again ahead of its meeting next April.
Mr Jen added that other regional currencies are also expected to weaken - some by an even greater magnitude.
Emerging market currencies are expected to weaken by another 20 to 30 per cent and the world will face a ‘global currency event’ for the first time in its history.
In the past, the world has faced only regional currency crises.
He also believes that the US dollar will maintain its dominance against other currencies, because the euro, the greenback’s main rival as a world currency, has major problems of its own.
He said that fear, driven by the financial crisis, had led to the initial rally of the dollar against other currencies.
But the dollar will continue its resurgence against emerging market currencies as he expects a collapse of capital flows to these emerging markets. He said that as economies around the world slow, foreign direct investment will shrink or even disappear and bank loans will dwindle, leading to a likely collapse of capital flows in the year ahead.
He said even after the currencies stabilise, they will not recover to the original levels they were at until recently and called therefore for a ‘structural, comprehensive and critical rethink of (the) emerging markets thesis’.
Morgan Stanley’s head of interest rate strategy Jim Caron said that while the markets have priced in for the Federal Reserve to start hiking rates again next year, he believes that the Fed and central banks around the world are more likely to keep rates lower and for longer as they would want to overshoot in support of assets.
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Singdollar ‘will slip to 1.80 against greenback’
By Robin Chan
13 November 2008
The Singapore dollar is set to weaken sharply to $1.80 against the greenback within the next year, the leading United States investment bank Morgan Stanley has predicted.
Last night, the exchange rate was about S$1.50 to the US dollar.
Morgan Stanley believes Singapore, like many export-oriented nations, will experience greater weakness in their currencies than expected.
However, the Singapore Government is likely to endorse this currency weakness in order to support exports amid the global downturn, he said. A weaker Singdollar makes exports relatively cheaper.
Mr Stephen Jen, the US bank’s global head of currency research, made the prediction here yesterday at the Morgan Stanley Asia-Pacific Summit.
He said the weakening of the local unit will be the result of not only a resurgent US dollar, but also an aggressive policy by the Monetary Authority of Singapore (MAS) to protect the export-oriented Singapore economy during the global slowdown.
This is necessary to deal with what he called the ‘changing realities’ in the world economy led by the slowdown in China and contractions in the United States, Europe and Japan.
These changes are likely to lead to further weakness in export demand, on which Singapore’s economy is highly dependent.
He said: ‘Singapore exports will collapse like everywhere else, so I wouldn’t expect anything other than an aggressive reaction from the MAS.’
The central bank shifted to a neutral exchange rate policy last month amid a deep slump in exports.
If exports continue to weaken, economists expect the MAS to intervene again ahead of its meeting next April.
Mr Jen added that other regional currencies are also expected to weaken - some by an even greater magnitude.
Emerging market currencies are expected to weaken by another 20 to 30 per cent and the world will face a ‘global currency event’ for the first time in its history.
In the past, the world has faced only regional currency crises.
He also believes that the US dollar will maintain its dominance against other currencies, because the euro, the greenback’s main rival as a world currency, has major problems of its own.
He said that fear, driven by the financial crisis, had led to the initial rally of the dollar against other currencies.
But the dollar will continue its resurgence against emerging market currencies as he expects a collapse of capital flows to these emerging markets. He said that as economies around the world slow, foreign direct investment will shrink or even disappear and bank loans will dwindle, leading to a likely collapse of capital flows in the year ahead.
He said even after the currencies stabilise, they will not recover to the original levels they were at until recently and called therefore for a ‘structural, comprehensive and critical rethink of (the) emerging markets thesis’.
Morgan Stanley’s head of interest rate strategy Jim Caron said that while the markets have priced in for the Federal Reserve to start hiking rates again next year, he believes that the Fed and central banks around the world are more likely to keep rates lower and for longer as they would want to overshoot in support of assets.
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