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Singdollar set to fall against US$ by end of year: DBS

DBS analysts remain cautious on outlook for the SingDollar

The intractable trade war, disappointing Singapore growth data and the weak yuan will take their toll on the Singdollar in coming months, according to DBS analysts.

They tip that the currency will fall to 1.42 against the US dollar by the end of the year. It was around 1.3802 yesterday.

"We remain cautious on the outlook for the SGD," they added.

"The trade-reliant Singapore economy is vulnerable to heightened growth worries in the world's largest economies. The trade war remains the top downside risk now.

"Multiple factors - higher US tariffs on European Union goods, a possible no-deal Brexit on Oct 31 and a weak German economy - could also tip the eurozone economy into recession."

Their forecast is for the SGD to end the year above 1.40 to the greenback.

DBS FX strategist Philip Wee and DBS economist Radhika Rao also noted yesterday that emerging Asia currencies have weakened modestly in anticipation of disappointments at the US-China trade talks in Washington starting tomorrow.

"US President Trump made clear his preference for a big and not a partial deal. Conversely, China is realistic and would only target issues that both countries have agreed on this week," they added.

"Talks, however, will be difficult during a US presidential election year already marred by the Trump impeachment inquiry.

"Hopes that an interim trade deal ... have been partly negated by the US Commerce Ministry's decision to place 28 Chinese government and commercial companies on its blacklist.

"The US has also hit EU wine and cheese with more tariffs."

Another factor in the mix is the Monetary Authority of Singapore (MAS) monetary policy statement and advance estimate for third-quarter GDP due out on Oct 14.

The DBS analysts do not anticipate much change in the policy settings around the SGD.

"There is not yet a case for a return to a neutral or zero appreciation policy. Singapore is likely to avert a technical recession, and we are not forecasting deflation," the analysts said.

They noted that the DBS economist is tipping that third-quarter GDP will come in at around 2.1 per cent after a negative second quarter, with expansion of 0.7 per cent for the full year.

"It will be monitoring to see if the weaknesses from the trade war have spread beyond the external and manufacturing sectors.

"Close attention will be paid to the labour market, where the unemployment rate for residents has been at or above 3 per cent since the (fourth quarter last year)."

Despite earlier downgrades, the official inflation forecasts for 2019 are not negative, DBS noted.- THE STRAITS TIMES

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