USD/SGD drops to two-week low post trade deal

Improved market sentiment following the US-China trade deal is boosting the Singapore dollar.

The USD/SGD fell to a two-week low of 1.34501 on Thursday (16 January), IG data showed.

Improved risk sentiment boosting SGD

This is because of the US-China phase-one trade deal signing that took place a day prior, which led to more positive market sentiment across the region, said IG Asia Market Strategist Pan Jingyi.

When risk sentiment improves, Asian currencies like the Singapore dollar tend to strengthen on the back of higher demand, she added.

Barring any geopolitical tension flare-ups, Pan sees the SGD holding its ground through the Chinese New Year at least, partly also due to support provided by a rejuvenated Chinese yuan.

Scotiabank also gave a similar forecast, stating that the trade deal ‘will sustain a risk-friendly mood for Asian currencies in the first quarter of 2020’.

It added that ‘the SGD will likely rise further along with a strengthening Euro’, with the Monetary Authority of Singapore unlikely to adjust its S$NEER (nominal effective exchange rate) policy band set in April 2019.

USD/SGD ‘could hover above 1.3445’

On the flipside, UOB’s latest report on Friday (17 January) posited that only a ‘New York close below the major 1.3445 support would suggest further USD weakness towards 1.3400’, seeing that the currency pair ‘recovered quickly’ after hitting Thursday’s low.

‘Downward pressure has eased with the recovery and the current price action is viewed as part of a consolidation phase,’ the bank wrote in its daily yesnote.

Still, it acknowledged the possibility of the greenback hovering above 1.3445 in the coming weeks, on the rationale that ‘only a move back above 1.3530 would indicate the risk of a break of 1.3445 has dissipated’.

For Friday’s market, UOB expects the USD/SGD to trade sideways, likely between 1.3455 and 1.3490.

As of 17 January, 4.30PM, the FX minor is trading at 1.34575 on the IG platform.

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