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AnalysisU.S.

Is it time to invest in the U.S. dollar?

With annual inflation hitting a June peak of 9.1% in the U.S., the Federal Reserve has adopted a hawkish policy this year and raised the federal funds rate six times this year. The most recent hike raised interest rates to 3.75%-4% which sent stock markets tumbling upon the news.

Besides sending stock markets lower, rising rates have other net effects which include the strengthening of the U.S. dollar. How does this happen?

When U.S. interest rates rise, U.S. Treasury bonds and bills become more attractive to investors due to their higher yield. Since U.S. bonds and bills are denominated in U.S. dollars, this leads to higher demand for U.S. dollars from international investors which thereby appreciates the currency.

We can see all this playing out now. Year-to-date, the U.S. dollar has strengthened significantly against other major currencies in the world.

U.S. dollar exchange rate against major currencies. Source: YCharts

What about the Singapore dollar? Unlike many other countries, Singapore doesn’t use interest rates to control its monetary policy. Instead, the Monetary Authority of Singapore (MAS) uses foreign exchange — primarily through the sale or purchase of the USD against the SGD — to adjust the value of the Singapore dollar within a certain band.

Due to MAS intervention, the Singapore dollar has remained relatively resilient against the U.S. dollar compared to other currencies, but it has still weakened year-to-date against the greenback.

Singapore dollar to U.S. dollar exchange rate. Source: YCharts

From the chart above, you can see that the Singapore dollar has weakened 2.3% year-to-date against the U.S. dollar as a result of the Fed’s rate hikes. And U.S. interest rates are expected to continue rising and peak at 4.75%-5% in 2023.

Knowing this, you may want to take advantage of the appreciating U.S. dollar and rising interest rates over the short term. So what are some of the available options to park your cash in USD?

1. USD fixed deposits

The first option is to open a U.S. dollar fixed deposit account with a bank. For example, DBS Banks offers 1 to 12-month U.S. dollar fixed deposits with interest rates ranging from 3.4% to 4.67% depending on your amount and tenure. Like with any fixed deposit, there is a penalty for early withdrawals. This is a simple way to invest some of your cash in USD, especially if you prefer dealing with your bank.

2. U.S. Treasury bonds

You can buy U.S. bonds and bills on the secondary market through your bank or broker. You can check if they provide access to U.S. bond markets and if your account has permissions to trade fixed income products. You will likely see price volatility as interest rates rise, which will affect your return if you sell your bond before maturity.

You should be fairly familiar with the bond market and how to trade bonds if you choose this option. If not, you may need to take some time to acquaint yourself with bond metrics and terminology. Also check if the fees and commissions your bank/broker charges are reasonable.

3. moomoo Cash Plus

Another convenient option is to invest in a USD cash fund. moomoo Cash Plus offers investors a simple way to invest in the CSOP USD Money Market Fund which aims to generate a return comparable to U.S. dollar deposit rates. The fund invests in short-term USD money market instruments and debt securities.

As of 18 November 2022, the CSOP USD Money Market Fund’s seven-day annualised yield is 3.2580%. This fund was launched in July 2022, so there isn’t a long-term track record we can refer to at the moment. With any investment fund, there is the risk of price volatility.

The main advantage of the investing in the CSOP USD Money Market Fund via moomoo Cash Plus is that it gives you the flexibility to move your investible U.S. dollars in and out of the fund while you wait for stock opportunities in the stock market. If speed in the market is important to you, then you can certainly consider moomoo Cash Plus.

Here’s how you can subscribe to CSOP USD Money Market Fund using moomoo Cash Plus.

1) In your moomoo app, tap on Discover > Funds > Cash Plus

2) Tap on CSOP USD Money Market Fund

3) Enter your subscription amount and tap Subscribe

That’s it! You can withdraw from the fund along with any proceeds earned at any time.

The fifth perspective

Investing in the U.S. dollar is a short-term play based on the greenback appreciating as interest rates rise. The Fed is expected to continue raising interest rates into 2023, but that will still ultimately depend on the U.S. economic data they receive in the coming months. Remember that the goal of the Fed is to fight inflation. If upcoming economic data shows that U.S. inflation has slowed substantially, the Fed could decide to reverse course and adopt a more conservative approach.

If you are comfortable with the foreign exchange risk and agree that U.S. interest rates will continue to rise, then you may want to consider parking some of your cash in short-term USD instruments.

From now till 31 December 2022, moomoo SG is giving S$2* cashback every day for 10 days if you make a one-time deposit of just S$100 in moomoo Cash Plus. For new moomoo users: Earn a guaranteed 5%* p.a. rewards (annualized percentage) for 90 days when you subscribe at least S$100 in moomoo Cash Plus.

Moomoo SG via moomoo trading app has announced a lifetime $0* commission on US market for eligible clients. They are offering one of the most competitive trading fees across US, HK, SG & China A Shares with live market data.

When you successfully register for your moomoo SG universal account via the moomoo app, you will get to enjoy $0 commission-free* trading for the U.S. stock markets. You would also gain free access to Level 2 market data for the U.S. stock market; Level 1 market data for the Singapore stock market; Level 1 market data for China A Shares.

Investment products available through the moomoo app are offered by Moomoo Financial Singapore Pte. Ltd (Moomoo SG), a capital markets services licence holder regulated by the Monetary Authority of Singapore. Moomoo SG’s parent company, Futu Holdings Limited, is backed by world-class investors which include venture capital affiliates of Tencent, Sequoia Capital and Matrix Partners.

Open your moomoo SG universal account today with the moomoo app here. *Terms and conditions apply.

All views expressed in the article are the independent opinions of The Fifth Person. Neither moomoo Singapore or its affiliates shall be liable for the content of the information provided.

The content is provided for entertainment & informational use only. The information and data used are for purposes of illustration only. No content herein shall be considered an offer, solicitation or recommendation for the purchase or sale of securities, futures, or other investment products. All information and data, if any, are for reference only and past performance should not be viewed as an indicator of future results. It is not a guarantee for future results. Investments in stocks, options, ETFs, and other instruments are subject to risks, including possible loss of the amount invested. The value of investments may fluctuate and as a result, clients may lose the value of their investment. Please consult your financial adviser as to the suitability of any investment. This advertisement has not been reviewed by the Monetary Authority of Singapore.

Adam Wong

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

2 Comments

  1. You have a young team of intelligent advisors but it is puzzling that your team had not talk much about cryptocurrency. This is a new investment class of asset n it is destined for the future generation usage. Your team is mired in old staple n not forward looking. Of course there is lot of confusion n lack of clarity but this is the very reason for your team to do deep dive so we could get your insight of your research. Crypto is like the internet in the 2000 when it was just being trash down because of the very same reason of being blurry then. The investor public need a torch to be shone on this subject to enlighten us to its potentiality. No doubt it has the potential to shine like the internet but you guys r not there. We hv a few exchanges locally based n it might be a good idea to hv a chat with them. The potential of rewards is so much greater than the risk if we hv the correct insight. Personally I invested in xrp n you definitely can check this one out.

    1. Thanks! But we will avoid cryptocurrency. Blockchain technology, on the other hand, is something we could explore in time.

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