Aussie dollar falls below S$1, more weakness seen

SINGAPORE — The Australian dollar today (Jan 14) fell below parity versus the Singapore dollar for the first time since early November, as China’s move to weaken the yuan at the start of the year heightened concerns that Asia’s largest economy is slowing more than forecast.

“The Australian dollar is the liquid China economic proxy, and unlike shorting local Chinese assets or currency, you don’t get whipsawed by policy intervention,” Mr James Purcell, a cross-asset strategist at UBS Group’s wealth-management business in Hong Kong, was reported as saying by Bloomberg.

The Aussie dollar dipped below the S$1 level this morning and was trading at S$0.9973 late in Singapore, after hitting a low of S$0.9957 intraday. Since the beginning of the year,  it has fallen 3.5 per cent. Against the US dollar, the Aussie has fallen 5 per cent this year to US$0.6932 on worries that China could be losing its grip on managing the slowdown of its economy. 

“The Australian economy is still very much tied to the resource sector, so if we have worries about China, its demand for resources, the Aussie dollar will be impacted,” said Mr Song Seng Wun, economist at CIMB Private Banking.

“For those in Singapore, we may look forward to cheaper holidays Down Under … For the broader economy, however, I think Singapore will still prefer a stronger Aussie because the flip side is the cost factor for Australians, which means that tourist arrivals to Singapore from Australia may get affected,” he added.

Official statistics showed that by the third quarter of last year, tourist arrivals from Australia into Singapore had seen eight consecutive quarters of year-on-year declines. This trend will likely continue should the Aussie keep sliding.

Mr Song said that while Australia is not among the top 10 trading partners of Singapore, it is still a sizeable market whose performance could impact the local economy. Other than tourism, Singapore also imports dairy and agricultural products from Australia, which is also among the top property investment destinations for Singaporean investors.

Mr Sim Moh Siong, senior currency strategist at Bank of Singapore, said there is still room for the Aussie dollar to drop further. “Overall, the Australian dollar has fallen a long way. The question is whether it will weaken further. We still see room for further weakening, but the weakness will be more contained and we do not expect a collapse,” he said. He declined to say how low the currency would fall against the Singapore dollar. 

“It is hard to tell as we need to get a sense on the bottoming out of commodity prices, how the oversupply situation is worked off, and that would probably take place later this year. We also need to see stabilisation in China’s growth first,” he said.

Mr Sim added that S$1 continues to be a key psychological level to watch. The last time the Aussie dollar fell to a low of S$0.90 was in 2008 during the height of the global financial crisis.