The Singapore dollar strengthened against the US dollar following a sharp reversal in the greenback and a decline in long-term US Treasury yields, with OCBC Global Markets Research seeing scope for USD/SGD to move lower if broader US dollar weakness persists.
OCBC said USD/SGD declined after the US Treasury announced an expansion of its long-end bond buyback programme, helping drive long-dated Treasury yields lower.
The US Dollar Index (DXY) fell around 0.8%, which OCBC described as a relatively sizeable one-day move. Given the significant correlation between the DXY and USD/SGD, the research house said the impact of the broader dollar decline on the currency pair should not be understated.
While Singapore’s supportive economic fundamentals and the Singapore dollar nominal effective exchange rate (S$NEER) policy framework remain important anchors for the currency, OCBC said the latest movement demonstrates that the direction of the US dollar remains a significant cyclical driver of USD/SGD.
The research house also noted that speculative positioning could leave the greenback vulnerable to further corrections.
According to OCBC, Commodity Futures Trading Commission data showed net-long positioning in the DXY was stretched by historical standards, potentially creating room for further US dollar weakness if additional downside surprises emerge.
“If USD weakness extends, there may be room for USD/SGD to drift lower even in the absence of a Singapore-specific driver,” OCBC said.
Separately, OCBC highlighted Singapore’s latest measures aimed at attracting and retaining hedge funds and senior investment professionals as supportive of the city-state’s longer-term position as an international financial centre.
These initiatives include tax incentives, a new hedge fund investment programme and a dedicated investment-management track under the existing Overseas Networks & Expertise Pass (ONE Pass) framework.
OCBC said the measures add to Singapore’s constructive medium-term financial-hub story, although their direct impact on Singapore dollar flows is likely to remain limited for now.
From a technical perspective, USD/SGD was last seen around 1.2720, with mild bearish momentum on the daily chart remaining intact.
OCBC cautioned, however, that the Relative Strength Index was approaching oversold territory, suggesting some possibility of two-way movement even as the broader bias remains lower.
The research house sees support at 1.2680, corresponding to the 76.4% Fibonacci retracement level.
Resistance is seen at 1.2740, followed by 1.2790 and the 1.2830-1.2840 region, which incorporates the 100-day and 200-day moving averages as well as a key Fibonacci retracement level.
Overall, OCBC expects downside pressure on USD/SGD to persist with the trading range increasingly skewed lower, particularly if the pullback in the US dollar and long-term Treasury yields continues.
