Singapore dollar looks vulnerable even as economy opens up

[SINGAPORE] Singapore's currency looks set to remain under pressure as global headwinds outweigh the benefits of an easing in the nationwide lockdown.

The US dollar-Singapore dollar pair has failed to break below technical support at its one-month low, suggesting its next move could well be higher. Data this week is expected to show the nation's economy contracted 1.8 per cent year on year in the first quarter, according to the median estimate of economists in a Bloomberg survey.

The South-east Asian currency has been pressured by the negative impact of the coronavirus on the Singaporean economy and is down over 5 per cent against the greenback so far this year. The government is projecting gross domestic product will shrink 1 per cent-4 per cent in 2020.

"We see significant challenges ahead for the Singapore dollar, given Singapore is one of the most open economies in the region," said Standard Chartered strategist Divya Devesh. "Given the subdued outlook for global growth and global trade, and a sharp decline in global manufacturing PMI's, we expect the recent improvement in Singapore's non-oil domestic exports to reverse course."

The nation's exports unexpectedly climbed for a second straight month in April, mainly due to a jump in pharmaceuticals, according to data released on May 18. The government said the shipments tend to be volatile and fluctuate across months.

Also keeping the local dollar under pressure is the willingness signalled by the Monetary Authority of Singapore (MAS) to let the currency weaken at its March 30 policy decision, in a bid to support the trade-reliant economy. The MAS doesn't set rates, but instead manages the currency against major trading partners as a policy tool.

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The Singapore dollar's nominal effective exchange rate - the focus of the MAS - began May at a similar level to where it was at the time of the March policy decision, suggesting there is still room for the currency to weaken further.

The US dollar-Singapore dollar pair traded at 1.4222 on Friday at 5.20 pm local time, more than 1 per cent above its April 30 low of 1.4070. Its failure to breach this support leaves the door open for a grind higher toward technical resistance at the April 6 high of 1.4417.

Still, pressure on the currency should be alleviated somewhat as the domestic economy starts to pick up with Singapore allowing more businesses to reopen on June 2. That will increase the active proportion of the economy to three-quarters - after a nationwide lockdown cut transmission of the coronavirus among citizens and permanent residents.

BLOOMBERG