RISING U.S. BOND YIELDS HAMMERING SINGAPORE DOLLAR

Rising US bond yields leave the Singapore dollar vulnerable to retesting a four-month low against the greenback in the run-up to the city-state’s half-yearly monetary policy review, David Finnerty reported for Bloomberg News.

Elevated rates on Treasuries helped push the currency pair through its 100-day moving average earlier this month, before momentum stalled at 1.3531, just short of the 200-day moving average.

But it may just be a matter of time before that level is breached. Yields have surged further since the Federal Reserve last week hammered home its intention to let inflation overshoot, and the prospect of a second US stimulus package could propel them even higher.

This is increasing the allure of the greenback and points to renewed weakness in the Singapore dollar.

“In the very near term the Singapore dollar is likely to benefit from the dovish Fed tone,” said Mitul Kotecha, chief EM Asia & Europe strategist at TD Securities Ltd. in Singapore.

“However, further out, we think higher U.S. yields will likely result in a firmer dollar and as such the Singapore dollar will be one of the more vulnerable currencies in Asia.”

Singapore inflation data due Tuesday may add to the case for a test of the 200-day moving average, and even a possible run back toward resistance at 1.38. The pair hasn’t touched that level since late July.

Core inflation is forecast to rise just 0.1% in February from a year ago, following negative readings over the previous 12 months.

A benign uptick in price pressure would give little cause for the Monetary Authority of Singapore to adjust the exchange-rate band it uses to ensure price stability.

“We expect the central bank to maintain the neutral policy,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Inflation is emerging from deflation, but will remain modest.”

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