The Sing Dollar’s Long-Term Strengthening Binge May Be Flattening Out

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By: Tom Cleveland (Guest Writer)

Singapore has been a success story worthy of much praise, analysis, and books attempting to pinpoint the prevailing strategies for other emerging nations to emulate.  An island country with a population of just over five million, Singapore ranks third in the world in GDP per capita behind only Qatar and Luxembourg.  The tiny republic is perfectly positioned on many sea and air trade routes and over the years has transformed itself into one of the major international transportation hubs in all of Asia.  After a slight contraction in 2009 due to the global economic slowdown, Singapore distinguished itself as being the fastest growing economy in the world in 2010 with real GDP growth of 14.5%.  

The nation’s currency, the Singapore Dollar, also reflects this amazing success story, as anyone familiar with forex trading could easily relate.  The chart below depicts the relationship of the Sing Dollar to the U.S. Dollar (the typical order of the currencies has been reversed to emphasize the strengthening moves that have occurred over time): 


A 5-year chart is presented that reflects a steady appreciation of the currency by nearly thirty percent over the period.  The one “hiccup” in the chart was the “recessionary jerk” in global economic flows that followed the failure of Lehman Brothers.  When a crisis of this proportion strikes, capital tends to flee to perceived safe havens, generally U.S. Treasury Bills and precious metals.  Fundamental valuations are nonexistent, replaced by knee-jerk volatility, a boon for currency traders, except for those invested in un-hedged carry trade positions. 


The above chart is actually not unique.  It is almost a mirror image for the same chart for the “AUD USD” or the “NZD/USD” currency pairs.  The growth story for the past decade has been the emerging markets in Asia.  All countries in Asia have benefited from the prevailing business model of off shoring from Western countries, especially to China and India, and the resulting redistribution of wealth and international commerce.  Currency exchange rates, the focal point of all international trade transactions, will accurately portray the winners and losers of this global competition. 


Singapore, however, is a bit more unique.  The long-term growth trend depicted in the chart actually has its roots some thirty years ago.  The Sing Dollar has appreciated at a steady rate, some 65%, for the past three decades, one more confirmation of the special success story for this island republic.  The only difficulty for local investors is that their investments overseas have been impacted negatively by their strong home currency.  The question now is can this long-term trend continue or is it running out of steam?


Experts at forecasting future currency positions believe that the currency has topped out, so to speak.  One-year projections put the “SGD/USD” ratio at 0.79, barely above today’s market quotation.  The “ascending triangle” in the chart above also signals that the market is unsure of the next major pricing movement.  Stock exchanges are hitting new highs in the United States after brisk run-ups over the past seven months, but everyone is holding their collective breath to see if the recovery is real.  At present, unemployment remains high, and deficits and public debt are expanding despite political rhetoric to reverse these trends.


One simple fact is true.  Singapore’s economy is not slowing down for the United States.  The general market perception is that the U.S. will recover and resume its economic leadership role, but the jury is still out.  Many economists, including those at the IMF, forecast low growth scenarios for the Western world, below 3%.  Caution is the watchword at the moment.

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