Why analysts fear Singapore dollar may weaken versus greenback

It will slump to 1.27 by end-2013.

According to CIMB, their FX team believes that S$ will weaken against US$ to 1.27 by end-2013. CIMB's weaker S$ view was an anti-consensus view at the start of the year but recent risk aversion has brought the FX pair close to their target.

They said thy expect a combination of 1) risk aversion, 2) receding inflation in Singapore, 3) weaker growth in Asian economies, and 4) likely weakening of the yen again to prevent S$ from returning to the previous appreciating path.

Here's more from CIMB:

The question for interest rates is whether rates will go up in a hurry. We view the rise in 10YR yields across the world as a reflection of increased risk aversion, not central banks changing their stance on interest rates.

In fact, the Federal Reserve made a most dovish speech last week after equity markets started to collapse. One has to recognise that the market’s decline was in spite of a sustained easy money policy stance in the US, not because the Fed turned hawkish.

Without a change in the Fed fund rates, we do not expect the 3M S$ SIBOR to creep up significantly either.

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