Wednesday, December 24, 2008

USD to weaken?

Just saw a report from DBS.

Looks like we are expecting the USD to SGD to weaken over the next year.

Here is how it is expected to happen :
  • US will be deleveraging itself ( which is happening at the moment)
  • People will sell off their assets and pay back the loans used to buy the assets
  • Since the loans were in USD, the people have to buy USD
  • This cause a shortage in USD in the forex market, causing the USD to appreciate/rise at the moment
  • However, since Japan is also deleveraging itself, but at a slower rate, people will sell off their USD for Yen as the 'Yen carry trade**' was widely used in the past.
  • This in turn will provide the supply of USD in the currency market and cause the USD to depreciate/drop
  • On the other hand, as of Oct 2008, Singapore has shifted to a zero appreciate of its SGD
  • So with respect to USD and SGD, the USD is expected to weaken

**More info of the Yen carry trade at :

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