3 Nov (ST)
THE Singapore dollar hit a
new all-time high against the United States dollar yesterday, and
is likely to rise even further in the coming months.
This came a day ahead of a crucial
meeting by the US Federal Reserve which could further weaken
the ailing greenback. The Singdollar has been appreciating strongly
since the start of the year as the US dollar continues to
slide.
However, analysts said the trigger for yesterday's jump was
closer to home: Australia's surprise decision to hike interest
rates by a quarter point.
This sent the Singdollar soaring as high as $1.288 to the US
dollar, before settling at about $1.2886 later in the day.
In the longer term, the currency could jump to as much as $1.20
against the US dollar going towards next year, said DBS Bank senior
currency economist Philip Wee.
Investors have been snapping up the Singdollar and other Asian
currencies over the last few months, as they flock to emerging
markets seeking higher returns than what the slumping greenback and
stagnating US economy can offer.
At the same time, Asian central banks have been raising interest
rates to counter fears of rising inflation in their fast-growing
economies. But higher rates also have the effect of attracting more
money into the region.
Yesterday, after the Reserve Bank of Australia (RBA) said it
would raise interest rates as a pre-emptive attack on inflationary
pressures, the Australian dollar climbed to US$1.003. It was only
the second time, after last month, that the Aussie dollar has been
worth as much as the US dollar.
Regional currencies also rallied against the greenback following
the announcement. For example, the Thai baht and the Malaysian
ringgit both gained against the US dollar.
The lively action in the currency markets yesterday was 'all
about the RBA's decision', said Mr Wee.
'Australia is a proxy for Asia, and its worries about inflation
reflect other Asian central banks' concerns as well,' he said,
noting that the Reserve Bank of India also hiked interest rates
yesterday.
Another factor which could push the Singdollar up in the medium
term is the much-anticipated monetary easing expected to be
announced by the Fed tomorrow, Singapore time, economists said.
This second round of quantitative easing - where the Fed pumps
hundreds of billions of dollars into the system by buying up bonds
- is likely to result in an even weaker US dollar, which in turn
will fuel excess liquidity to Asia.
But the impact of this move on the Singdollar may be limited,
said analysts.
One reason is that this round of easing is likely to be a more
modest affair than the first. At a forum at the National University
of Singapore yesterday, former Federal Reserve chairman Paul
Volcker said that he did not expect 'overpowering results' from the
Fed move.
Also, the market has been anticipating the easing for months
now, and has already responded by factoring the move into currency
prices, said Barclays Capital economist Leong Wai Ho.
Yesterday marked the second time in three weeks that the
Singdollar has broken records. It rose to a high of $1.289 against
the greenback on Oct 14, when the Monetary Authority of Singapore
(MAS) unexpectedly announced that it would allow the strengthening
Singdollar to appreciate further.
A DBS report noted recently that as much as US$2.3 billion
(S$2.96 billion) has been flooding Asia every day since April last
year.
UBS Bank currency strategist Nizam Idris said the MAS monetary
policy statement last month had also made investors look at the
Singdollar as a 'one-way bet'.
'Many investors looking at the Singdollar are betting that it
will only rise against the US dollar,' he said.
