“The Singapore dollar is usually considered a haven currency compared to Southeast Asian peer currencies,” said Max Lin, Asia FX and rates strategist at Credit Suisse.
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The Singapore dollar has remained resilient against the buoyant U.S. dollar compared with its regional peers, and analysts say it’s a relatively “safe haven” currency — especially in Southeast Asia.
Singapore’s currency has fallen by nearly 6% year-to-date, but other currencies in Asia have weakened even more against the greenback.
The Japanese yen has depreciated by around 25% against the U.S. dollar since the start of the year, while the Philippine peso fell about 15% and the Thai baht lost 13% during the same period.
It comes as the U.S. central bank continues to embrace a hawkish stance toward inflation.
Last Wednesday, the U.S. Federal Reserve raised benchmark interest rates by another 75 basis points for the third consecutive time, and signaled it will continue raising rates to as high as 4.6% next year before stopping.
The news pushed the U.S. dollar to a fresh two-decade high, and widened the interest rate differentials between the greenback and many other Asian currencies.
Bank analysts say they are bullish on the Singapore currency even though it fell to 29-month lows on Thursday, after the Fed’s hawkish policy outlook.
“The Singapore dollar is usually considered a haven currency compared to Southeast Asian peer currencies,” said Max Lin, Asia FX and rates strategist at Credit Suisse.
He named Singapore’s high foreign currency reserves, a strong current account surplus and a well managed currency policy as some reasons for the Singapore dollar’s resilience.
keep inflation in check.
Most of the other countries in Asia use interest rates as a main policy tool to manage inflation.
“Singapore’s small geographic size and its status as a small, open economy mean that nearly all consumable goods are imported,” Lin said.
“Therefore, the MAS reacts to high inflation by allowing the Singapore dollar to appreciate against peer currencies, thereby driving down the cost of imported goods in local currency terms.”
“I believe that investors also associate the strong [Singapore dollar] with Singapore’s competence and reliability, as a partner and gateway to the region,” Wee said.
Australian dollar, British pound, or even the Japanese yen.
The Singapore currency is not immune to the strength of the U.S. dollar either, said Wee, who warned that the Singapore dollar could lose its footing as Asia’s outperformer should there be a global recession.
Normally, when there’s a global recession, Singapore’s nominal effective exchange rate tends to drop from the top to the bottom of the [policy] band, potentially weakening the Singapore dollar to the 145 level against the dollar, the currency economist said.
“This is the main risk, or chief risk, for investors seeking [the Singapore dollar] as a haven,” Wee added.
Maybank said it expects the MAS to continue on the path of policy tightening as the country continues to grapple with inflation that reached a 14-year high in July.
However, Lin said Credit Suisse expects that “the Singapore dollar will weaken vis-a-vis the U.S. dollar,” and predicted that the currency will weaken to 143 by year-end.
Japan reportedly intervened in the currency markets — the first intervention since 1998.
The decision Thursday came after the yen weakened past the 145 level following the Bank of Japan’s decision to hold interest rates steady and stick to its ultra-low interest rates.
The currency strengthened more than 2% against the greenback on news of the intervention, but analysts say its upside is not likely to last.
“On the one hand, the Ministry of Finance is reducing yen supply via occasional FX intervention, but the Bank of Japan is still persistently boosting yen supply with its regular purchases of [Japanese Government Bonds] as it enforces its 10y JGB yield target,” Lin said.
