(Aug 14): The Singapore dollar extended gains to touch a fresh 2024 high versus the greenback, as forecasts for the local central bank to keep a tighter monetary policy relative to the US Federal Reserve (Fed) this year favoured the Asian currency.
Singapore’s dollar rose as much as 0.1% to 1.3163 per dollar on Wednesday, the highest since Dec 28 last year. The currency posted its biggest monthly gain since November last year in July, and is the third-best performer among Asian currencies so far this year after the Malaysian ringgit and the Hong Kong dollar.
The Monetary Authority of Singapore (MAS) is seen easing only next year, while bets are increasing for the Fed to cut interest rates as soon as September, a move that reduces the appeal of the dollar. A gauge of Asian currency performance jumped to the highest since March as a retreating greenback boosted exchange rates across the region.
“The trade-weighted Singapore dollar will continue to be supported by the MAS’ existing appreciation setting, which is unlikely to change this year, unless we get a US recession,” said Alvin Tan, the head of Asian currency strategy at Royal Bank of Canada (RBC) in Singapore.
Singapore now sees the economy growing this year by between 2% to 3%, narrowing its forecast from an earlier projection of 1% to 3%. A July non-oil domestic exports report due Friday is expected to show a slight rebound, after registering five straight months of contraction.
The city state’s currency outperformed Asian peers in 2022 and 2023 but its fortunes could change this year.
“The Singapore dollar may find it harder to end 2024 at the top of the Asian foreign exchange league table, as the initiation of Fed rate cuts could buoy risk-on sentiment, and the Singapore dollar tends to underperform in a broad dollar downtrend,” Stephen Chiu and Chunyu Zhang, strategists at Bloomberg Intelligence, wrote in a note this week.
RBC’s Tan also sees Singapore’s currency weakening to 1.35 per dollar by year end on expectations for a greenback rebound. A median estimate in a Bloomberg survey forecasts the Singapore dollar at 1.34 over the same period.
