Business

Singdollar strengthens as US dollar takes a battering

Korean peninsula tensions and fears of rate hike delay send greenback skidding

The Singapore dollar has strengthened to its highest level against the United States dollar in over 12 months, as a host of currencies gain from a weaker greenback.

The turbulence is being driven by heightened nuclear tensions on the Korean peninsula and some domestic US factors.

Investors are moving into safe-haven assets, such as gold and the yen. The yuan has also risen markedly.

The Singdollar has surged 7.9 per cent to the greenback since Dec 28 last year, when it hit 1.4517. It was at 1.3370 yesterday - a level not seen since Aug 16 last year.

Fears that Hurricanes Harvey and Irma could hit US third-quarter growth also took their toll, along with fresh doubts over whether the Federal Reserve will keep raising interest rates as planned, given soft inflation readings.

"The weak dollar reflects uneven growth in the US economy, which explains why we are not seeing strong wage growth and inflation.

"Coupled with uncertainty over (US President Donald Trump's) fiscal policy and the impact of the hurricanes, this may cause the Fed to take a bit more time to raise rates," CIMB economist Song Seng Wun said.

European Central Bank (ECB) chief Mario Draghi's failed bid to stem the euro's rise sent the greenback skidding further.

He flagged moves to begin tapering the ECB's huge stimulus programme this year.

1.3370 The Singdollar to the US dollar yesterday a level not seen since Aug 16 last year

The yuan's recent strength is also lifting regional currencies such as the Singdollar against the greenback.

EXPORTS

A stronger Singdollar may make exports from here more pricey, but the Republic imports more than it exports, Singapore Business Federation chief executive Ho Meng Kit noted.

A weaker greenback would help Singapore importers and consumers, he said.

Some local exporters have hedging strategies in place that allow them to plan for potential volatility by locking in an exchange rate and securing margins in advance.

Mr Erman Tan, chief executive of Asia Polyurethane Manufacturing, said: "We buy raw materials and sell products in US dollars, so there is a natural hedge. But as the US dollar weakens, that will affect our profit margin. To mitigate that, we have to hedge and invest more in product innovation."

Currency analysts believe the US dollar may soon stabilise as the Fed is set to announce a plan at its Sept 19 to 20 meeting to start trimming its US$4.2 trillion (S$5.6 trillion) debt portfolio - an effective money-printing programme brought in after the global financial crisis.

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