CIMB: Sell Singapore dollar

INVESTORS should sell the Singapore dollar because the central bank will likely seek a weaker currency to help the economy recover from a recession in the second half, according to CIMB Investment Bank Bhd.

The Singapore dollar may drop 1.7 per cent to S$1.48 versus the US currency in a month, Kuala Lumpur-based strategist Suresh Kumar Ramanathan said in a phone interview. The currency has gained 3 per cent to S$1.4543 since April 14, when the Monetary Authority of Singapore said there was “no reason for any undue weakening” of the local dollar.

“Singapore’s economy is very exposed to the global trend and having an overly strong currency may derail the recovery process,” said Suresh, whose employer is a unit of Malaysia’s second-largest banking group.

“The Singapore dollar is trading above the strong side of its policy band and we think that tolerance is coming to an end.”The MAS will bring the local currency back inside its undisclosed policy band after reports this month showed electronic exports tumbled in May for the 28th month in a row and retail sales fell in April by the most since 1999. The band’s weak side is around the S$1.57 to S$1.58 level and the stronger one at S$1.47 to S$1.48, CIMB estimated.

Singapore’s dollar and other Asian currencies may also weaken in coming weeks as concern financial markets will slump prompts investors to favor the perceived safety of US dollars.“Equity and commodity markets are looking overstretched and at risk of a significant pullback,” Suresh said. “We expect a strong US dollar to play out going into the second half.”