USD/SGD strengthens after reports of US$900bn coronavirus stimulus

The USD/SGD weakness appears to be over for the time being, with the forex pair closing higher for the second straight day on Tuesday 11 March.

The USD edged up 0.49% to finish the day above S$1.39100.

On Wednesday 11 March at 5am Singapore time, the USD/SGD managed to go even higher, hitting S$1.39254. It has since moved back below S$1.39000 and is currently trading sideways along that level.

US markets benefitting from fiscal aid and oil war

According to IG Asia market analyst Pan Jingyi, this latest rise can be linked to the greenback likely gaining some aid from recent oil price tensions between Saudi Arabia and Russia, as well as the Trump administration’s plans of further fiscal stimulus to cope with the coronavirus’ economic impact on Monday.

The latter move, she wrote in a note, had enabled US 10-year treasury yields to climb towards 0.7% that same day. The following day, Wall Street also raced higher on the back of the positive market sentiment.

The S&P 500 index and Dow Jones Industrial Average – the two closest-watched benchmarks in the US, had closed 4.94% and 4.89% higher respectively on Tuesday.

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Trump again reiterated plans to cushion the economy on Tuesday evening, hinting at a 0% payroll tax rate through 2020 that will reportedly cost US$900 billion, CNBC reported. A meeting involving Wall Street executives to discuss the government’s economic plans has also been set for Wednesday.

These measures are in addition to the US central bank’s interest rate cut of 50 basis points last week.

On Sunday, Saudi Arabia also announced its decision to ramp up oil production and lower oil prices, after Russia on Friday declined OPEC’s proposal to limit oil supply as a response to lower demand caused by the coronavirus outbreak. This had caused oil prices to crash over 30% on Monday morning.

This combination of factors had helped to drive investors to preferred safe havens like the US dollar and Japanese yen, said Pan. On Monday, gold – a popular safe-haven asset – shot to a seven-year high price of US$1,703.32.

Technical analysis: USD’s ‘weak phase has ended’

On a technical basis, although the USD/SGD rise looks to have come out of left field – the pair was trading below S$1.37700 just less than 48 hours prior, UOB analysts posit that the US dollar seems to have found some dependable respite.

‘The sharp and swift bounce in USD from Monday’s (09 Mar) low of 1.3760 took out our “strong resistance” level at 1.3890 yesterday,’ the analysts wrote, adding that this latest price trend suggests that the ‘weak phase that started in late February’ has ended.

They further noted that the USD has likely moved into a correction phase and that the rebound has room to extend higher from here. That said, any advance is viewed as part of a 1.3820/1.3990 range. In other words, a sustained advance above 1.3990 is not expected.

For now, the analysts believe that there is still room for the USD to push for S$1.3935 in the coming days, although a rise beyond that level on Wednesday itself is ‘not expected’.

However, they also cautioned that the recovery ‘appears to be running ahead of itself’ and that the current upward pressure should see some easing in due course.

Pan concurred, saying that although the US dollar has ‘reclaimed some strength’, downside risks remain, as Wall Street is still expecting the US central bank to proceed with interest cuts, ahead of the next Federal Open Market Committee meeting on 18 March.

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