(Jan 17): Some of the biggest global banks are going short the Singapore dollar, saying the improving regional outlook is damping demand for its haven qualities.

Goldman Sachs Group Inc recommends betting that the island’s currency will weaken against the ringgit after the Monetary Authority of Singapore (MAS) signalled it had finished its tightening cycle. Societe Generale SA advocates going short versus the offshore yuan, as China reopens its economy.

The bearish tilt for the Singapore dollar is a complete turnaround from last year, when the currency was the only one among its regional peers to strengthen against the greenback. While it has gained another 1.3% versus the dollar in January, it is trailing behind almost all of its other Asian counterparts over the period. 

“On a relative-value play basis, with the US dollar on a more moderate-to-soft profile and risk aversion taking a back seat, we see room for selected Asian foreign exchange, including the Aussie, baht and yen that were oversold, to play catch-up with the Singapore dollar,” said Christopher Wong, a foreign-exchange strategist at OCBC Bank Singapore.

Momentum indicators show the Singapore dollar’s gains have taken it into overbought territory, according to slow stochastics, suggesting that some sort of pullback is likely in the near term.

Goldman Sachs initiated its short Singapore dollar-long ringgit trade last week, saying the most recent MAS statement indicated that policymakers are done tightening, and their outlook already incorporates the increase in the goods and services tax this year, strategists including Danny Suwanapruti in Singapore wrote in a note last Friday (Jan 13).

Investors should bet that the Singapore dollar will weaken versus the yuan, as the risk-on optimism surrounding China’s reopening will weigh on Southeast Asia’s haven currency, according to a note last Friday from Societe Generale strategist Vijay Kannan.