DBS Group Research economist Eugene Leow warns that shorter-term Singapore Dollar (SGD) rates may face upside pressure despite recent flush liquidity. He notes SGD rates have decoupled from USD rates, with spreads stretched, while Fed hike expectations remain sticky and the USD strong. Leow highlights USD/SGD near 1.30 and Monetary Authority of Singapore (MAS) policy decisions as key factors for SGD rate repricing.

Shorter-term SGD rates face upside risks

"We continue to be wary about upside to shorter term SGD rates. Over the course of the past six quarters, market participants have gotten used to very flush SGD liquidity and persistent belief in USD weakness keeping frontend SGD rates low."

"In some ways, SGD rates appear decoupled from USD rates and the spread between the two has become even more stretched. There are some hints that risks to SGD rates may be biased to the upside."

"First, Fed hike expectations look sticky despite the fall in oil prices. Things are also compounded by renewed US-Iran tensions that sent oil prices spiking overnight."

"Second, the USD is proving to be strong with the de-dollarisation theme falling off. Investors may rethink low SGD rates if USDSGD pushes through 1.30."

"Third, if the MAS holds off from re-steepening the SGD NEER slope again in July (our house call), there would be one less reason for SGD rates to push relatively lower."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)