Category Archives: Forex

SGD/INR – Has anything really changed??

 

Its been almost a year since I wrote anything on SGD INR or for that matter anything else. With the rate hovering around 35 there have been quite a few requests for me to express my views and here is my opinion.

How has the Past Analysis fared?

In my last post  (10th May 2010) I had recommended that converting SGD to INR at 33+ mark as it is beneficial based on Interest Rate Parity:

  1. Interest Rate on secured deposits  in India was 8% or more making conversion attractive and
  2.  The expectation was a downward movement from then rate of 32.4 against one SGD to Rs.30 giving additional gains

The first part of analysis held good but the rate moved opposite  – towards the Rs. 35 mark.

The instant question that comes to mind is Did I lose if I converted to INR instead of holding SGD’s?

The answer is NO. As per recommendation the pair moved to 33.29 within 2 weeks of recommendation on 21 May 2010. One Dollar coverted to INR @ 33.29 for 1 year and invested @ 8% would grow to 35.95 which is less than todays interbank rate of 35.85

Whats the recommendation for upcoming months?

I am going to stick with my recommendation that converting SGD to INR is beneficial in all situations and one would not loose by repartriating money to India and parking in fixed deposits.

The Interest Rates have strenghthened to 9.5% as of today and conversion has become even more attractive. To substantiate – lets say we convert 1 SGD @ 35.85  now and invest @ 9.5%, it will grow to 39.25 in one years time. Would SGD INR touch 39.25 in one year? Unlikely!!

SGD INR rate is a cross between USD-INR and USD-SGD for which the current rate is 44.25 and 1.235 respectively. For SGD INR to fetch 39.25 in a year the USD-SGD would have to move to 1.13, assuming that there is no change to USD INR.

Consensus on the street is that USD-SGD could move up to 1.19 by October 2011. Even if INR weakens to 46 against the USD the possible rate would be  38.65 after a year which is lesser than what you get by investing in a Fixed Deposit.

How do I decide when is a good time to convert?

Exchange rates do not move linearly and with the volatility its difficult to know if its a good time to convert. Also at the request of few readers I have added the dimension of taxability of interest income @ 30%. The below graph shows the movement of SGD INR for the past 2 years.

Two important observations are:

  1. SGD INR has stayed below the Tax Adjusted Implied Rate (TAIR) line except 2 occasions
  2. Its beneficial to convert to INR whenever the actual rate moves away positively from the TAIR.

On 13 Sep 2009 the TAIR was 32.94 and Actual Rate was 33.94, Actual Rate moved back to TAIR of 33.01 on 4 Oct 2009. On 30 Jan 2011 the Actual Rate was 35.81 against the TAIR of 35.49 and the two converged to 35.53 by 6 Feb 2011.

The chart below shows the prediction based on curent exchange rate of 35.85, Interest rate of 8.5% till 30 June 2011 and 9% after that till 31 Dec 2011, tax of 30% and Start of Year Rate of 34.96:

 

The expectation is that with the Singapore elections on 7 May 2011 the SGD might appreciate quickly towards 1.19 against the USD giving a possible rate of 36.5 in next 2 weeks. If this happens you know what to do!!

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Update – 30 May 2011

The Interbank Rate moved up to 36.55 today – target achieved. There is a slight possibility of the pair flirting with 37 levels but 36.5 is a good rate to convert.

 

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SGD INR – Volatile Times Ahead

A quarter of the year has passed since I last wrote about SGD INR and it is satisfying to see the analysis going right – the pair dropped below 32 in the first quarter.

I did not realise that I happened to be one of the few who write about the pair and recently a lot of people have been asking my views on the pair given the new financial turmoil stirring up on the horizon.

Before going into details lets enumerate the factor variables and conflicting forces active at this point in time.

  1. The Euro precipitation due to crisis in Greece.
  2. Flight from Emerging Market investments as a risk aversion
  3. MAS’s decision to let SGD appreciate against the basket of currencies to reign in inflation
  4. China’s indication on letting Yuan strengthen
  5. Recovery in US economy and its impact on USD.

Add to it that SGD INR is a cross pair determined by movements of SGD/USD and USD/INR.

USD/INR

USD/INR dropped below the mark of 44 a few days back and has since sharply recovered. The long term mean for the pair has been the 44-45 mark with fluctuations of Rs.5 either side. The pair would continue to strengthen as the Indian economy grow and there is Foreign Direct Investment. With the greece crisis stirring up there is bound to be some profit taking in the Indian markets by FII and flight of capital outside India. This would result the pair moving towards the 46.0 mark as a knee jerk reaction.

Further more with EUR depreciating the USD – there will be added strength to USD which would indirectly work in favour of USD/INR marching upwards.

However with Yuan appreciating against the USD some of the USD strength against all currencies would be negated. 

SGD/USD

This one is a more complicated pair to analyse. The singapore economy has shown good growth in the first quarter and the pair has gradually strengthened to below 1.40 levels. The MAS has shown intent to let the SGD appreciate against a basket of currencies.

No one knows for sure what is the composition of this basket – but USD and EUR definetely are larger components. There is a posibility that Yuan might be added to this basket if not already a part of it or get a bigger weightage if its already there.

With currency appreciation a way to reign in inflation the pair might edge back to 1.35 though this movement would be gradual. On the flip side a strong currency makes exports cheaper for Singapore – both services and manufacturing and government might still want it to hover around sub 1.39 mark.

How the 2 impact SGD/INR?

Now with USD/INR looking to touch 46.0 and SGD/USD moving around 1.375 (taking mid point between 1.35 and 1.40) mark the cross rate would be 33.45 – with a lower and upper range of 32.80 ~ 34.07

I would recommend this retracement to convert SGD to INR before the long term trend of a march towards 30 resumes.

SGD INR – whats in store for 2010

2009 proved to be a volatile year for a lot of currencies – specially the pairs with USD as one of the component, but the cross currency rates like SGD/INR showed relative stability. The pair has moved between 32 and 33.5 over the past 2 years.

The question a lot of you would be asking is what happens in 2010? So here is my analysis.

I expect SGD/INR to turn towards 32 to 30 range over the next 6 months to a year. A look at the chart below would show that the pair failed to stay past 34 mark even though it crossed it once. The pair has been hovering betwen the 33 – 33.5 mark for past 6 months. 

 

 

 

 

 

 

 

SGD-USD movement

The Singapore Monetary authority has been maintaining a policy of gradual appreciation of SGD against the USD. This has been giving SGD strength against the INR as well (SGD/INR) being a cross rate.  The latest economic data shows that the Singapore GDP shrank by 6.8% in Q42009. This would force the MAS to rethink about the strong SGD approach. The most likely scenario is for SGD to move to the 1.45 – 1.50 range against the USD. traditionaly the MAS has allowed SGD to strenthen against basket of currencies with growth in SGD.

INR-USD movement

Indian economy on the other hand has been performing well and the projected growth in GDP is 6.5 to 7.5%. With improving GDP numbers and growth in economy the INR should strenthen back to its long term mean of 44 – 45 against the dollar. Using these two assumptions we can plot the projected move of INR against SGD.

Cross Rates between SGD/INR based on possible values of SGD/USD and INR/USD

The cells in dark green indicate the current range of SGD-INR depending on the rates of SGD and INR against the USD.

The cells in dark blue indicate the possible rates as the currencies re-adjust giving a range of 31.9 to 32.75 (this is the short term expectation – for next 3 to 6 months)

The cell is amber indicate the longish term range as the growth gathers steam over next 1 year.

So as always – I would recommend converting converting SGD to INR at any rate above Rs.33 for a Singapore dollar.

Go Long on USD/JPY @ 88.00

At the time of writting USD/JPY is trading at 88.06 after having tested 86 in the past few days. There is a general concern of yen stregnthening further but I would place my bets other way round.

My recommendation is to but USD/JPY in two tranches. first one now at 88 and again if it drops around 86. There should be a quick bounce back to 90 giving around a 3 – 5 % gain.

Over the next 3 months USD/JPY should make a move towards 93-95 range.

Detailed analysis

The USD JPY chart below shows that the pair is trading near its 2 years lows. From a pure technical perspective this is a reason good enough to initiate long position.

 

From the fundamental perspective the risk of inflation has started to look very real in next few months. The central banks would have to increase interest rates in the coming months. The trend has already staretd in the Asian economies.

With Fed tightening the interest rates the carry trade between USD and JPY will be back in vogue. One can argue that Japan can increase the interest rates as well – but seeing the latest GDP and export numbers, Japan has every incentive for a weaker currency.

It is very difficult to say if the pair would return back to the 120 – 123 mark in near future but a good 10% upside from the current levels of 88 is what I am expecting.

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Update – 15 Dec 2009

The USD/JPY achieved the first target of 90.00. People can hold position for the longer term. Over the next 6 months period it would not be surprising to see USD/JPY flirt with the 98 – 101 levels.

happy trading.

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UPDATE: 4th Jan 2010

The Pair has touched 93 and the next target is now 96 and then 98. Though i must say I was not expecting the move to be this quick. I would reduce half of my position at 95 and look to buy again if it drops to 90 -91 range

SGD/INR whats happening with it?

Its been time since the last post on SGD/INR and a lot has happened in the currency market. Though surprisingly the SGD/INR rate has moved in the narrow range of 32.5 – 33.50.
The past few months saw SGD strenthening from 1.55 to 1.44 against the US dollar. Rupee on the other hand moved from 52.5 to 48.00 against the greenback.
The interest rates front has turned interesting as well – the central banks are not so focused on inflation and growth seems to have caught their attention once again. The rates have softened across geographies. The Interest rate in singapore for a long term deposit will average around 1.25% and India a long term deposit brings in 7% on an average (though the long term National Savings certificates still get 8% but the lock in is for 5 years)
In the light of the new data converting singapore dollars to Indian Rupees still makes sense.

Even if the Singapore dollar stays at 32.75 agaist the Rupee the gain turns out to the 5.6% and a chance of loss is only if the Rupee weakens beyond 34.60 against the SGD.

As earlier thats a unlikely scenario. The probability of Rupee strenthening against the USD to the range of 44 – 46 is extremely likely and that would see SGD INR heading down to Rs.30 levels. When will that happen is really difficult to say, but for the time being it still makes a lot of sense to convert SGD to INR (those of you who followed the post in the past must already be sitting on annualilsed gains of 5.6%).

If you want to go a step further then borrow in Singapore dollars – a lot of banks are running offers for 6 month loans for a effective rate of 3% p.a – and convert to INR.

Even with the interest lay out you stand to make near riskless gains of upto 3% or more!!

Immigrant Population and cost of remittance

In the new flattened world the mobility of labour is at levels never seen before in history. You would find people from Philippines working in US and Saudi Arabia and so would be workers from Suriname working in Netherlands. A general trend is people from poor or developing countries moving to the greener pastures of Developed countries to break free from poverty and lower standards of life. These workers are contributors to the home countries forex reserves as well as the improved living conditions of their families.
World Bank maintains an intersting stastic of cost of sending money from one country to another for small remittances – $250 and $635 USD equivalent.

The most interesting inference that can be drawn from these graphs is the constitution of the immigrant work force in the country of origin for the remittance. The cost of transfering money also represents the development of the receiving countries banking system.

Interestingly India appears to be one of the top 5 destinations to which money can be remitted cheaply in most of the cases, which shows the spread of Indian workforce across the globe.

A few samples from the World Bank site are reproduced below:

Canada can_1033

Francefra_1033

Germanydeu_1033

United Kingdomgbr_1033

 

 

 

 

 

 

United Statesusa_1033

Singaporesgp_1033

 

 

Even Better time to convert your SGD to INR

With the recent volatile movements in the Currency markets and substantial weakening of INR against the USD here are some more analysis on SGD/INR conversion.

The latest USD/INR rate in the interbank market stands at 51.75 (3 March 2009, 3:00 GMT), this is a appx. 4.5% deprecaiation since the last post. SGD on the other hand has depreciated by appx. 2.0% against the USD – from 1.517 to 1.556.

The trend shows a beta of appx. 2 between the depreciation of INR against USD as compared to SGD against USD.

The latest market buzz is for the INR to depreciate to Rs.54 against the dollar on a conservative basis and Rs.56 on a pessimistic basis due to balance of payments situation, falling GDP growth rate and overall withdrawal of Foreign Direct Investment.

 This would translate to a depreciation between 9% to 13% from the rate of 49.5. If the beta factor holds then the SGD should depreciate by 4.5% to 6.5% from the base price of 1.517. This would give a range of 1.585 to 1.615 against the USD.

Using the cross rates the SGD/INR should be in the range of 34.06 to 34.67, resulting in movement between 3% to 5% from the current price of 33.06 over a period of 3 months – if Rupee depreciates further

The interest rate gain for three months would avg 2% [(9% (indian Fixed deposit rate) – 1%(singapore deposit rate)/4] so even if rupee weakens down to 56 against the dollar you stand to gain 5%-2% = 3% if you hold for three months and 1% if it touches Rs.54. Given the interest rate diffrential and probability of more than expecetd weakening of SGD against the USD (beyong 1.617), it is a even better time to convert SGD to INR

Right time to convert your SGD to INR

The Singapore dollar has held a pretty steady rate averaging Rs.32.25 / SGD in the past few months. We try to explore why borrowing in SGD and converting to INR is a good idea at this point in time.

The Historical Rate perspective
It first crossed the Rs.32 barrier mid July ‘08 and quickly retraced back around 10% to Rs.29.5 by mid August ’08. The SGD was quoting 1.35 and INR at 42.66 against the dollar, giving a cross rate of Rs.31.60 against the Singapore dollar as on 18th July 2008.
Then the financial crisis gathered steam and till date USD gained 11.37% against the SGD and 13.65% against the INR.
From the historical lows the USD has gained 22.65% against the Indian Rupee and just 11.37% against the SGD (sees charts below)

    usdsgd

  usdinr

 

 

 

 

 

 

 

 

The Economic Perspective
The Singapore economy has slipped into technical recession and the growth rates are projected to be within the 2% mark for 2009. India on the other hand projects a growth rate of 6-7% for the current year. In a nutshell the Indian economy is still growing which should result in a greater demand for Indian currency as compared to the Singapore dollar.

The Interest Rate Perspective

The average bank savings rate in Singapore hovers around the 1% mark as compared to 4% in India.
The long term fixed deposit rates for upto a year fetch appx. 2.5% in Singapore and 8.5% in India.
A one year return analysis will show that SGD against INR should move to 34.40 in a year’s time to maintain exchange rate equilibrium:
sgdinr-projection

 

 

 

Conclusion
Given the growth rate differential of around 4% between the two economies and the weakening of INR against the USD by twice as much as SGD, there is every probability that either the SGD will weaken further against the dollar or INR will appreciate against the USD to achieve equilibrium, by around 10% – giving a target rate of around Rs.30 against the Singapore dollar.
So if you convert your SGD to INR now you stand to gain:
         1. 14.67 % if the SGD/INR comes down to Rs.30 and you invested your converted proceeds in 8.5% Fixed deposit for a year in India
         2. 5.85 % if the exchange rate stays at 32.5 and you invested your converted proceeds in 8.5% Fixed deposit for a year in India
         3. 0% if SGD/INR moves to 34.40 (the probability of this is really low

SGD/INR Uptrend: Causes and impact on average Indian

SGD/INR Up Trend: Cause and Impact on the average Indian

The Singapore dollar broke its historic highs of Rs.29.63 (25th July 2006) against the INR on 24th April 2008 – the closing price that day was Rs.29.65 per Singapore dollar. A fairly range bound pair that oscillated in the range of Rs.26 to Rs.29.5 per Singapore dollar has been in an uptrend ever since.

The long term volatility remained at 5% which made this a relatively stable currency pair.

We will try to analyse the possible reasons and for this uptrend and the impact on the average Indian.

What’s causing this spike?
1. Inflation
The island city country imports most of the consumables from food to gasoline to clothes from neighboring and other countries. The steady price rise and demand supply imbalances in these exporting countries have created inflationary pressures. Singapore which has enjoyed a low inflation of around 2.5 ~ 3 % for last few years is now expected to face inflationary trends of up to 5%. The MAS (Monetary Authority of Singapore) has been forced to undertake a gradual appreciation of the Singapore Dollar to maintain the purchasing power parity of its nationals.

2. Reduction in the Dollar Peg
The Sing dollar was historically pegged against the US dollars but with the recent USD weakness the currency as now been pegged against a basket of currencies which has a reasonable Euro bias. The Euro has been strengthening against all major currencies thereby imparting strength to SGD as well.

3. Crude oil Prices
The unprecedented rise of the Crude oil price from US$ 53, 3 years back to the current prices of US$136 has also caused this range bound pair to move in the same direction.
Singapore imports all petrol and other crude oil products for its use. A simple analyses shows a direct correlation between the pair (SGD/INR) and the crude oil.

Table1. Co-Relation SGD/INR to Crude Oil
Co-Relation 3.5 years 1.5 years 6 months
SGD/INR to WTI 0.42 0.46 0.95

Chart 1: SGD/INR against WTI Crude (West Texas Intermediate – a type of Crude)

Impact!!
1. Exports
With INR weakening against the SGD, the exporters have all the reasons to cheer. Singapore just might be the platform for them in to the South East Asian markets.

2. Employed in Singapore
The Indian expatriate population in Singapore is around .25 million people and the rising SGD has brought smiles to their faces. The remittances to the home country are bound to rise but with the increasing cost of living the upside there might be limited. In a nutshell their remittances have been adjusted for Oil led inflation.

3. The Vacationer
Singapore has been the favored tourist destination for Indian’s but with the SGD having appreciated by close to 16% the holiday costs are on the upside. The Indian vacationers could start to limit their tours to Malaysia and Thailand as a result of these costs.

The Road Ahead…
The MAS has indicated to allow the SGD to strengthen against the USD up to 1.25 by the end of this year dependant on need to reign in inflationary pressures. The current rate is 1.36 and was 1.43 for USD/SGD at the beginning of this year.
If the USD/INR stays at the current levels of Rs.42.5 / USD the year end rate for SGD/INR could reach Rs.34 / SGD if everything else remains the same. Given that Oil is traded in USD and India is a net importer of oil the demand for USD should rise in turn pushing the USD/INR upwards.

The mathematical model encapsulating the above information indicates the SGD/INR movements with respect to crude Oil as tabulated below:

Crude Oil Price SGD/INR rate
80 27.92
90 28.29
100 28.77
110 29.38
120 30.11
130 30.96
140 31.92
150 33.01
160 34.22
170 35.54
180 36.99
190 38.56
200 40.24

SGD just might be your hedge against the rising Oil Prices!!

Copyright: Aditya Ladia, ACA (India), ASI (UK)
Sources: http://www.oanda.com and http://www.eia.doe.gov for data on Exchange Rates and Crude Oil.