I have written in the past about Singapore. Today, I am dusting off the old recommendation and going long on the Singapore dollar again, as all the signs are flashing toward appreciation in the currency.
A few events have occurred in the past week or so that point toward the appreciation of the Singapore dollar. We had the slowing Industrial Production in China as the first step. While you may think that a slowing China would be bad for the global economy, we should pause and peel the onion a bit more.
As China slows, it is meeting its planned and announced target of slowing down its previously red-hot economy. China’s economic planning is showing the results sought. The next step is to obviously release the clutch and let the car accelerate a bit. However, the Chinese have made it clear that they are not lifting any of the restrictions on real estate, which has been their biggest fear.
Having learned from America to not let housing bring the house burning down (no pun intended), China is tightly controlling the housing market while allowing the remaining sectors to run a bit. The Premier of China and other high-ranking officials have announced that they plan to ease interest rates a bit.
Having been fooled by the jawboning tactics of politicians, I have been watching for the signs of whether they really mean it or if they are just blowing hot air. Earlier this week, the government of China started allowing the appreciation of the renmimbi, or yuan, again after a halt for a few weeks.
The correlation between the Chinese renmimbi and the Singapore dollar has been very strong in the past few quarters. Every time the renmimbi rises, the Singapore dollar appreciates. This time will be no different.
Adding fuel to the rise of the Asian currencies is that the panic of Europe seems to be calming down for now. The panic of Greece leaving the eurozone or the euro being destroyed is not more distant than say four weeks ago. But Europe’s demise is certainly not imminent now as per trader sentiment.
In fact, while it is certainly more risky than the Singapore dollar, I have also gone long on the euro at about 1.22 and would recommend that, but only to the strong-hearted as this may be a volatile ride.
The overall outlook on all Asian currencies is strong on the coattails of the Chinese revamping and accelerating their economy again. The summer doldrums seem to be abating and growth recovery seems to be sprouting again.
It is amazing as to how this is happening on cue. For the past three years, each fall, growth around the globe emerges. Growth is strong everywhere through fall and winter. However, by the second quarter of the new year, the growth fades and by summer the growth slows down completely. And each time, the start of the growth begins in Asia.
I believe this is happening again and we will now see a gradual rise of the Singapore dollar, the Australian dollar, the New Zealand dollar and all the commodity currencies like Norway and Canada.
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