Singapore Dollar Surges Most in a Decade on Interest-Rate Cuts

By Patricia Lui

Oct. 30 (Bloomberg) -- Singapore's currency surged the most in a decade against the U.S. dollar on speculation a series of global interest-rate cuts and liquidity injections by the Federal Reserve will bolster demand for the city-state's exports.

Central banks in the U.S., China, Hong Kong and Taiwan lowered their benchmark policy rates in the past 24 hours, encouraging spending. The Federal Reserve also said it would provide $30 billion each to Singapore, South Korea, Brazil and Mexico via swap facilities to ease shortages of U.S. dollars.

The ``Singapore dollar's rise was due to a bit of everything, from the global response to the rate cuts, the surge in the major currencies and the fact that markets were caught short on Asia currencies,'' said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore.

Singapore's dollar rose 2.1 percent versus the U.S. currency to S$1.4653 as of 3:51 p.m. local time, according to data compiled by Bloomberg. That's the biggest gain since September 1998. It reached S$1.5163 on Oct. 24, the weakest in a year.

The central bank conducts its monetary policy by guiding the local dollar within an undisclosed band of trade-weighted currencies of major trading partners. It adopted a neutral policy bias earlier this month which called for zero appreciation of the local currency in its trade-weighted basket.

`Technical' Rebound

The Singapore dollar's relative strength index, a technical chart used to measure potential turning points in prices, rose to a level in the past week that signaled the currency may rebound. The 14-day index exceeded 70 in the five days through Oct. 28, a level that indicates the currency may change direction.

``Technical factors'' may help drive the Singapore dollar higher in ``the very near term,'' Harr said. He retained his outlook for the currency to weaken to S$1.5000 per U.S. dollar by the end of December, citing the poor economic outlook.

Singapore confirmed earlier this month that it is in a recession, lowering its economic growth forecast for the year to 3 percent. The Monetary Authority of Singapore said on Oct. 28 that the economy faces ``further slippage'' and will probably grow below its ``potential rate'' next year as a global slowdown threatens the manufacturing sector.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net.