Some of the biggest global banks are going short the Singapore dollar, saying the improving regional outlook is damping demand for its haven qualities.
Goldman Sachs Group Inc. recommends betting the island’s currency will weaken against the Malaysian ringgit after the Monetary Authority of Singapore signaled it has finished its tightening cycle. Societe Generale SA advocates going short versus the offshore yuan as China reopens its economy.
Singapore Dollar Is Overbought Based on Momentum Gauges
The bearish tilt for the Singapore dollar is a complete turnaround from last year when the currency was the only one of its regional peers to strengthen against the greenback. While it has gained another 1.3% versus the dollar in January, it is trailing behind almost all of its other Asian counterparts over the period.
“On a relative-value play basis, with the US dollar on a more moderate-to-soft profile and risk aversion taking a back seat, we see room for selected Asian FX including the Aussie, baht and yen that were oversold to play catch-up to the Singapore dollar,” said Christopher Wong, a foreign-exchange strategist at OCBC Bank Singapore.
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Momentum indicators show the Singapore dollar’s gains have taken it into overbought territory, according to slow stochastics, suggesting that some sort of pullback is likely in the near term.
Goldman Sachs initiated its short Singapore dollar-long ringgit trade last week, saying the most recent MAS statement indicated policy makers are done tightening and their outlook already incorporates the increase in the goods-and-services tax this year, strategists including Danny Suwanapruti in Singapore wrote in a note on Friday.
Investors should bet the Singapore dollar will weaken versus the yuan as the risk-on optimism surrounding China’s reopening will weigh on Southeast Asia’s haven currency, according to a note on Friday from Societe Generale strategist Vijay Kannan.