Bear Stearns is recommending clients buy dollar calls against the Singapore dollar in the short term and UBS Warburg and Commerzbank also expect a fall in the Sing dollar. James Fauset, v.p. in foreign exchange at Bear Stearns in London, said the bank has been recommending two-month U.S. dollar calls with a strike at SGD176.5, when spot was at SGD174.50 Wednesday. He said the firm has been advising hedge fund clients to put on such trades. As the global economy slows, he expects Singapore dollars to weaken more than other Asian currencies because of its dependence on exporting globally. Fauset added that volatility in the currency is usually low, around 6.3%, so the premium is only 0.50%.
UBS and Commerzbank declined to give specific trade recommendations. However, Patrick Bennett, currency strategist at Commerzbank in Singapore, predicted that the U.S. dollar could rise to SGD178. He explained that Singapore has moved toward a heavy dependence on electronics exports and has recently been struggling because of lagging demand. "An obvious way to boost exports is through cheapening its currency," he said, explaining that most of Singapore's exports are sold in the U.S. whereas other Asian countries trade more frequently between each other. Bhanu Baweja, director of currency strategy at UBS in Singapore, said in the near term the U.S. dollar should strengthen against most Asian currencies, but most markedly against the Singapore dollar, as the Singapore dollar is at the most expensive end of its range. Fauset added that the typical trading range of the U.S. dollar/Singapore dollar currency pair is SGD172-186.
