Fitch Solutions Macro Research yesterday said it has revised its average forecast for the Singapore dollar this year to $1.365 per US dollar (from $1.35), and to $1.35 to the greenback next year.
The research firm also expects the Singdollar and United States dollar to trade "broadly sideways" within the range of $1.345 to $1.385 for each unit of the American currency until October, with further range trading expected thereafter.
"Moderate weakness" of the Republic's currency relative to its US counterpart is expected to be driven by the economic differential between Singapore and the US, and markets pricing in prospects of the Monetary Authority of Singapore (MAS) easing in October.
In the next three to six months, Fitch Solutions said, market participants would likely increasingly price in the possibility that MAS would ease monetary policy in October.
This is by reducing the slope of the Singapore dollar nominal effective exchange rate, along with pricing in expectations of a "dovish Fed".
Fitch Solutions had revised its previous view that MAS would remain "on hold" after accounting for concerns expressed over a weakening outlook for trade and the global economy. For the next six to 24 months, Fitch Solutions is maintaining its long-term expectations for the Singapore dollar to be "resilient" amid external backdrop improvements in the event of a possible US-China trade deal, and as Singapore's fundamentals "remain relatively robust".
Its views also factor in expectations of improvements in Singapore's net exports next year - resulting in stronger growth then - with real GDP growth expected to rise to 1.7 per cent next year, from a previous forecast of 0.9 per cent for this year.
"Beyond FY2019/20, we expect the Government to continue to seek fiscal consolidation, which could be helped by a possible GST hike which is set to increase from 7 per cent to 9 per cent at some point between 2021 and 2025," Fitch Solutions added.
Fitch Solutions is part of the Fitch Group, which also owns Fitch Ratings. Their research and commentary are independent of each other.
