SGD likely to remain vulnerable to surge in U.S. inflation expectations on Trump’s re-inflationary policies, says Scotiabank

The Singaporean dollar is expected to remain vulnerable to a surge in the inflation expectations of the United States, following President-elect Donald Trump’s re-inflationary policies, while keeping its tight correlation with the EUR.

In addition, the AUD is anticipated to outperform the SGD next year as well on account of a steady outlook for RBA cash rate target, continued demand for iron ore due to potential stimulus plans of China and the U.S. and increasing inflationary pressure in the world. AUD/SGD cross runs a positive correlation with U.S. PCE core inflation, Scotiabank reported.

Lackluster external demand and U.S. President-elect Donald Trump’s protectionist trade policy will weigh on Singapore’s exports and economic growth. The MAS stayed on hold in October with the intention of preserving its policy space in our view. The central bank is likely to ease its SGD NEER policy band through re-centering it downwards by April 2017.

Moreover, Europe's populist parties have been emboldened by Donald Trump's decisive victory and Britain’s vote to leave the EU.

Political events listed below are likely to spark global political and market uncertainties in the future, fuelling intermittent demand for safe-haven currencies such as the USD and JPY and undermining the EUR.

"We would sell SGD/CNH cross with a target of 4.60, while staying with our long USD against a basket of KRW, MYR and SGD position in the weeks ahead," the report said.