(Aug 26): Singapore’s dollar advanced to its strongest in almost a decade, as traders weighed the difference between the local monetary authority’s relatively hawkish policy outlook compared with that of the US Federal Reserve (Fed).
The local dollar hit levels last seen in 2014 against the greenback late last Friday, and fluctuated around the 1.30 per dollar in early trading on Monday. Singapore’s currency has gained about 1.5% this year, to be the second-best performer in Asia behind Malaysia’s ringgit.
The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main monetary policy tool, maintained an appreciating bias for the currency in its July meeting to rein in inflation. Singapore upgraded this year’s growth forecast last month to a range of between 2% and 3%, from an earlier band of 1% to 3%, citing a resilient external demand outlook, further underpinning the local dollar.
On the other hand, the greenback slumped after Fed chair Jerome Powell all but confirmed at Jackson Hole that interest-rate cuts are coming to the US next month. He said the “direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks”.
“Dollar-Singapore dollar continue to trade with a heavy bias as Powell’s speech at Jackson Hole gave markets greater conviction to sell dollars,” said Christopher Wong, a Singapore-based foreign exchange strategist OCBC Bank Singapore.
However, further near-term gains for the Singapore dollar against the greenback may be limited.
The MAS focuses on the currency’s nominal effective exchange rate, referred to as S$NEER, which it allows to move within a policy band. OCBC’s Wong sees the S$NEER trading near the stronger side of its band, suggesting the Singapore dollar’s gains versus the greenback may lag those of its peers.
Uploaded by Tham Yek Lee