Foreign Exchange & Commodities (November 2017)

U.S. Dollar Finds Support

“Although global economic activity and inflation have continued to stabilise, other major central banks have discouraged excessively hawkish expectations, leaving the greenback as the obvious investment choice.”

– Michael Tan, Senior Portfolio Counsellor, OCBC Bank


Limits on oil supply have been supporting prices. However we doubt that positive supply-side factors will continue in the medium-term and so we remain cautious on prices. As a result, we maintain our 12-month price target for WTI of US$45/ barrel. Moreover, upside is limited by output quickly rising as more of the marginal shale producers become profitable.


Being a safe haven asset, most investors recognise the case for holding gold. While geopolitical risks abound, the prospect of moderately higher U.S. interest rates, the potential for a fiscal boost and record equities have capped gold price cheer in the near term.

U.S. Dollar

Just as in the past two months, the U.S. Dollar index may continue to carve out a multi-month bottom into November, with U.S. budget deliberations set to conclude before Thanksgiving and potentially underpinning the greenback along the way. Rate differential dynamics also continue to provide support for the U.S. Dollar in the short term.

Although global economic activity and inflation indicators have continued to stabilise, other major central banks (Bank Of England, Reserve Bank of Australia and Bank Of China, for example) have taken pains to discourage excessively hawkish expectations, leaving the greenback as the obvious investment choice. Nowhere has this been more apparent than in the Euro, with the European Central Bank’s much anticipated “taper” announcement late October largely in line with expectations but peppered with a more than healthy dose of caution.

Thus, the global foreign currency narrative may see the U.S.-centric news flow dominate in the near term, especially if the other G7 central banks remain less than enthusiastic about their respective growth/inflation outlooks while continuing to express discomfort towards undue appreciation of their domestic currencies.

Singapore Dollar

For the Singapore Dollar nominal effective exchange rate (NEER), the MAS’ October monetary policy statement was in line with our expectations, with the central bank maintaining its “for an extended period” phrasing. With little urgency to normalise policy just yet, we do not expect the Singapore Dollar NEER to exhibit near term urgency to test the upper one per cent threshold of its fluctuation band, let alone test the upper two per cent boundary. As such, we’d not expect outright or broad based Singapore Dollar outperformance based on the above.

However, we expect the Singapore Dollar to potentially outperform the Euro (ECB disappointment, Catalonia, domestic German politics) and the Pound (Brexit overhang, BOE unlikely to actively encourage rate hike expectations). Meanwhile, despite fairly sanguine global risk appetite levels, the Australian Dollar and the New Zealand Dollar have continued to fall victim to either a disappointing data feed, central bank jawboning or in the case of the Kiwi, political developments including a potential change in the New Zealand central bank’s policy mandate. As such, the Australian and New Zealand dollars may continue to underperform the Singapore Dollar in the coming weeks.