SINGAPORE: The Singapore dollar will likely keep weakening against the US dollar as the Monetary Authority of Singapore (MAS) is expected to ease its policy, and US tariffs continue to affect the global economy.
The Singapore dollar is close to a two-year low against the US dollar, with investors mainly betting on further weakness. Many expect the MAS to change its policy on Jan 24, though some think it could happen later in the year to see how President-elect Donald Trump’s return to the US presidency affects the economy, Bloomberg reported.
According to Lloyd Chan, a currency strategist at MUFG Bank in Singapore, Singapore is one of the most vulnerable economies in Southeast Asia to US tariff hikes. He expects the MAS to ease its policy in January by slightly reducing the slope of its currency band.
BNP Paribas shares a similar view, predicting that the Singapore dollar could fall to 1.40 against the US dollar over the year ahead.
Across Asia, currencies fell to multi-year lows against the US dollar as investors brace for the impact on inflation from US tariffs and lower expectations of further interest rate cuts by the Federal Reserve.
Just four months ago, the Singapore dollar hit a 10-year high of 1.2789 against the US dollar, but it has since weakened to 1.3655 as of Jan 20 at 11:23 AM Singapore time
Although the MAS has kept its currency band unchanged for over a year, with core inflation in Singapore now below 2 per cent, a level that officials consider stable, the central bank may be open to changing its stance.
Most analysts believe that the MAS will likely adjust its policy in 2025, with the Singapore dollar likely to weaken further, though there’s disagreement on when exactly this will happen.
Rather than interest rates, the MAS manages the city-state’s monetary policy by using the Singapore dollar’s nominal effective exchange rate (S$NEER).
Several financial institutions have released different forecasts for the Singapore dollar.
DBS Group expects it to weaken to 1.39 by mid-2025, while Goldman Sachs predicts it will reach 1.38 within six months. MUFG and Malayan Banking also expect the rate to hit this level in the first quarter.
Meanwhile, strategist Lemon Zhang of Barclays anticipates the MAS will make changes to the currency band this January, pushing the Singapore dollar to 1.39 by the end of the year “given the fast move in the dollar and US yields.”
Even though the predicted drop in the currency is only a few cents on the dollar, it could still reduce returns for investors, particularly in the country’s debt market.
According to Bloomberg, in 2024, corporate bond sales in Singapore reached a record S$31.2 billion, with foreign borrowers accounting for about a third of the volume.
DBS expects the MAS to wait until April to reduce the currency band’s slope. DBS strategist Philip Wee believes the exchange rate will rise to 1.39 in the second quarter, influenced by the Federal Reserve’s cautious approach to rate cuts and the upcoming US tariffs on Singapore’s trading partners.
Singapore’s trade ties with China also play a significant role in the country’s monetary policy. China is one of Singapore’s biggest trading partners, and the yuan makes up around 10% of the MAS currency basket, as noted by MAS managing director Chia Der Jiun in November. /TISG
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