Why did the USD/SGD fall to a 6-month low?

The USD/SGD forex pair fell for a fourth straight day, after an additional S$8 billion of Covid-19 measures were announced by the Singapore government.

USD/SGD: What’s the latest?

The USD/SGD forex pair, currently trading at a six-month low, continues to trend firmly downwards.

As at 10:15 SGT on Tuesday 18 August 2020, the USD to SGD exchange rate stands at S$1.36696 on the IG platform – the pair’s lowest price since 03 February 2020.

IG’s market analysis shows that ‘sells’ form 59% of all trades on the counter today and 51% of all trades across the week so far.

In terms of price expectations, 53% of clients currently hold ‘buy’ (long) positions on the currency minor, indicating that there is greater near-term expectation for the USD/SGD to rise.

Why is the USD/SGD falling?

The FX pair has been steadily falling since Friday 14 August 2020, further aided by Singapore’s stronger-than-expected export data for the month of July 2020.

Singapore’s non-oil domestic exports rose 6% year-on-year and 1.2% month-on-month in July, according to the latest official trade report released on Monday 17 August. Economists polled by Bloomberg had predicted a 4.4% year-on-year increase.

Meanwhile, Singapore Deputy Prime Minister Heng Swee Keat also announced an additional S$8 billion of measures to help workers and businesses tide through Covid-19’s impact.

Following both announcements, the USD/SGD fell three pips, or 0.3%, throughout the rest of the day.

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From a broad perspective, the pair has been trending lower since end-March on the back of improving risk sentiment and capital inflow towards the SGD, according to Daily FX strategist Margaret Yang.

‘The rising of local bank deposits, especially among foreigners, may have provided a good explanation behind SGD's strength,’ Yang says, adding that the AAA-rated Singapore dollar is ASEAN's safe-haven currency.

Singapore banks reported a 44% jump in foreign currency deposits in April this year.

A weakening greenback, evident by the US Dollar Index falling for a fifth straight day on Monday to 92.66 (close to a 26-month low of 92.52 recorded on 06 August 2020), is also causing the USD/SGD to remain in bearish territory.

USD/SGD near-term outlook

Looking ahead into the foreseeable future, Yang says the USD/SGD may have found support at around 1.36000.

She explains that this is because ‘the macroeconomic picture has shown signs of improvement in the US, and inflation outlook is rising – which may inhibit Fed's ability to ease further’.

Meanwhile, OCBC FX strategist Terence Wu noted that the NEER (nominal effective exchange rate)-implied USD-SGD thresholds are ‘getting persistently cut on the back of USD weakness, and adds downside pressure on the USD-SGD’.

‘For now, see the support level ease lower to 1.3640/50 levels, while 1.3700 should cap for now,’ he wrote.

How to trade forex with IG

Are you feeling bullish or bearish on the USD/SGD and other forex pairs? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <USD/SGD>, <USD/SGD Bear KO> or <USD/SGD Bull KO> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

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