Barely two months after the USD had fallen to historical lows of 1.20 against the SGD, it has recovered and rallied more than 5% in the past two weeks to reach 1.27.
In just two weeks, the price has gone back to the rate we last seen six months ago (see USD/SGD weekly chart shown below).
In times of market turbulence, the USD has always been a safe haven asset, with investors moving funds from riskier assets to US treasuries.
And how often have we seen an overly-crowded trade with wide consensus views often proved to be wrong?
Just about everyone has been bearish on the USD, from the institutional investors to the man in the street. There were also many funds that launched SGD hedged class in the past couple of years, so as to hedge away the currency risk of the USD. In order to do so, they had to take a short position on the USD (versus the SGD).
So now we see some of them being caught out.
Overall, I still think the long term fundamentals of the USD is rather weak. However, do note that long term trends in the currency markets are always combined with plenty of short term counter-trends.
In the short term, we could see some resistance at the 1.284 and 1.30 levels if the USD/SGD rate continues to go up.