SINGAPORE: Singapore’s currency weakness is likely to endure amid expectations that its central bank pivots to easing and US tariffs ripple through the global economy.
The Singapore dollar is already near a two-year low against the greenback, and options data show trading of bearish wagers is dominating the market in anticipation of the Monetary Authority of Singapore adjusting its stance. Investors wager that may take place on Jan. 24, though a move later this year is also possible, which would allow more time to see how Donald Trump retaking the US presidency plays out.
Singapore is one "of the most vulnerable economies to US tariff hikes in the Asean region,” said Lloyd Chan, a currency strategist at MUFG Bank Ltd. in Singapore. He predicts the MAS will ease policy this month by slightly reducing the slope of its currency band.
BNP Paribas SA also sees an imminent pivot, with the currency set to slip to 1.40 over the next year.
Currencies across Asia have dropped to multi-year lows against the dollar, as investors brace for an inflationary impact from US tariffs and pare expectations for further Federal Reserve easing. The Singapore dollar touched 1.2789, its highest level in a decade, versus the greenback just four months ago - but has weakened steadily since and now sits around 1.37 per dollar.
While MAS parameters for its currency band have stayed the same for more than a year, an abating of price pressures in Singapore has opened the door to a policy shift. Core inflation - which strips out volatile elements such as food and fuel - has dropped below the 2 per cent mark that officials have deemed consistent with price stability.
The emerging consensus among analysts is that the MAS will pivot this year and that the Singapore dollar will weaken, even if there’s disagreement about how soon officials will change tack.
MAS uses the Singapore dollar’s nominal effective exchange rate, referred to as S$NEER, as its main monetary policy tool rather than interest rates. It allows the currency to move within a band, adjusting the slope, centre or width as needed to alter the pace of appreciation or depreciation. It doesn’t disclose details of the basket, the band nor the pace of appreciation or depreciation - just whether they’ve changed.
DBS Group Holdings estimates the currency has already dropped to the midpoint of the MAS band and will slip to 1.39 by midyear. Goldman Sachs Group Inc. sees it at 1.38 on a six-month horizon, while both MUFG and Malayan Banking Bhd. predict it will touch that mark in the first quarter.
Barclays Plc expects the MAS to adjust S$NEER this month, putting the Singapore dollar at 1.39 by year-end, according to strategist Lemon Zhang. The pair has risen faster than expected "given the fast move in the dollar and US yields.”
While the predicted drop in the currency is just a few cents on the dollar, it still stands to reduce returns for investors in the country’s debt market, where sales of local-currency corporate bonds hit an annual record S$31.2 billion (US$22.86 billion) last year. Foreign borrowers accounted for about one-third of the deal volume in 2024, data compiled by Bloomberg show.
US trade policy also looms large for Singapore and its central bank, as MAS Managing Director Chia Der Jiun noted in November. China is one of Singapore’s largest trading partners, and Barclays estimated in September that the yuan constituted roughly a tenth of the MAS currency basket.
DBS expects MAS to reduce the slope of the policy band only in April.
The dollar-Singapore dollar cross should rise to 1.39 in the second quarter "due to the Fed’s cautious rate cut stance and Trump’s incoming tariffs on Singapore’s trading partners,” said DBS strategist Philip Wee. - Bloomberg
