Why did the USD rally to an 11-year high against the SGD?

As coronavirus concerns continue to impair financial markets, the USD is appreciating against most currencies, including the Singapore dollar.

On Monday 23 March, the USD/SGD forex pair hit its highest level since May 2009 when it touched S$1.46439 at 18:00 SGT, based on IG trading data.

The greenback has been growing in strength since 10 March, when investors began turning to safe-haven assets like the USD and gold, among others, amid a confluence of coronavirus-related economic factors and geopolitical oil tensions.

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US government failed to pass fiscal stimulus bill for a second time

Since that high, the US dollar has retraced slightly, after the US Senate failed to approve a US$2 trillion economic stimulus bill for the second time on Tuesday 24 March 02:00 SGT.

Prior to that on Sunday 22 March, the Trump administration was also unable to secure the required 60 votes for the coronavirus fiscal bill to be passed, with Democrats voting against the proposal over disagreements regarding equity buyback policies, executive compensation, unemployment insurance, as well as employee protections.

The Dow Jones Industrial Average index and S&P 500 index also closed lower for the fourth time in six sessions on Monday, dropping 3.04% and 2.93% respectively.

The CBOE volatility Index (VIX), which measures fear in the markets, also dipped lower for the second straight session to 61.59, vesus 66.04 previously. US 10-year Treasury yields fell 5.9 basis points to 0.786% after the US Federal Reserve agreed to purchase assets with no limit in order to support local financial markets.

Meanwhile, House of Representatives Speaker and Democrat member Nancy Pelosi said that House Democrats would work on a new piece of legislation on Monday ‘that takes responsibility for the health, wages and well-being of America’s workers’. This third bill would reportedly cost more than US$2.5 trillion.

As at 14:15 on 24 March, the USD/SGD minor is trading at S$1.45373.

Read more: Dow Jones, S&P 500 and Nasdaq futures halted for third straight week

USD/SGD forecast for the next few weeks

UOB FX analysts say the USD could drift lower in the next few days, but that any weakness would still be viewed as part of the 1.4500/1.4630 range.

‘We expected USD to move higher yesterday but were of the view that it “is unlikely to move above 1.4630”. However, USD popped to a high of 1.4646 before dropping back quickly. Upward momentum is starting to wane and the risk for USD to move above 1.4646 today is not high,’ they wrote in a note posted earlier today.

From here, the analysts added that the USD could drift lower but for now, any weakness is still considered as part of the 1.4500/1.4630 range. A sustained decline below 1.4500 is not expected.

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In the longer-term, the next resistance level of note is at 1.4900 but it remains to be seen if the US dollar ‘can maintain the current super-fast pace of advance’.

‘From a shorter-term perspective, upward momentum is beginning to show signs of tiring but only a break of 1.4380 (no change in ‘strong support’ level) would indicate that the rally is ready to take a breather,’ UOB added.

However, they cautioned that any consolidation at these overbought levels could potentially quickly increase the odds of a short-term top.

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