Chart of the Day: What’s in store for the SGD in 2016?

Expect further weakness against the greenback.

The Singapore dollar gained some ground against the greenback after the Monetary Authority of Singapore’s (MAS) decision to slow the pace of the currency’s appreciation in October.

However, analysts from DBS note that the respite will be short-lived, as the exchange rate is expected to climb back to 1.42 by the end of the year and reach 1.45 by the first half of 2016.

“The [central bank’s] move was tamer than consensus expectations for either a widening or re-centering of the policy band. As a result, the USD SGD retracted to as low as 1.373 before finding support. Our currency strategist believes that the policy band is now appreciating at a meager pace of 0.5% a year from an already lowered 1% following the off-scheduled 28 January meeting,” DBS noted in a report. 

“The recovery of currencies against the USD in Sep-Oct was a just relief rally. There was no real buying; it was mostly an unwinding of shorts. As long as monetary policy divergences remain in play, the USD will remain strong in the region,” DBS added.