USD/SGD likely to trade lower in line with rebound in EUR and CNH, says Scotiabank

The USD/SGD currency pair is expected to trade lower in line with a rebound in the EUR and the CNH, according to the latest research report from Scotiabank. The SGD has been running a close correlation with the EUR and the CNH, as high as 77 percent and 74 percent respectively over the past 12-month period.

It is due to the MAS-managed S$NEER basket in which the EUR carries a large weighting. The recent SGD depreciation is attributable to weak Eurozone data and mounting concern over US-China trade talks.

In addition, foreign investors have purchased a net CNY42.8 billion and CNY35.6 billion of Shanghai and Shenzhen stocks respectively year-to-date, via the two stock-connect schemes.

As China will further open up its domestic capital markets, continued portfolio inflows could boost the yuan, particularly if China successfully eases trade tensions with the US, the report added.

Moreover, Fed Chairman Jerome Powell is likely to reiterate his dovish stance when testifying before the Senate and the House respectively on February 26 and 27.

"We would like to sell USD/SGD now with a target of 1.340 and stop of 1.365. The pair declined after hitting the 38.2 percent retracement of the fall from November 2018 to January 2019," Scotiabank commented in the report.