The Singapore dollar is likely to stay flat against the greenback for the last three weeks of 2017, economists said, but all bets could be off next year.
The game changer may be the Monetary Authority of Singapore (MAS), which is expected to switch tack on the exchange rate and tighten policy. The "neutral" stance of zero appreciation, put in place last year, may run its course in the months ahead.
A policy shift, if not set at the MAS meeting in April, could come in October, said Ms Selena Ling, OCBC Bank's head of treasury research and strategy. "For monetary policy, MAS would want to be pre-emptive, so it depends on their inflation picture 1 ½ to two years down the road."
Ms Ling told an outlook briefing last Wednesday: "If MAS expects inflation to be picking up 18 months from now, they will probably have to move monetary policy now."
Mr Joseph Incalcaterra, Asean chief economist at HSBC, added: "The economy in Singapore might actually look more resilient next year, even if headline growth decelerates, because this year has been driven by a lot of external factors."
While electronics manufacturing has spurred exports this year, he predicts 2018 will bring internal tailwinds, like rising consumption from improved employment.
He added: "In most Asean economies, we're looking for a lot more certainty in the external environment, particularly Fed policy and China's growth pace in 2018."
CHANGE ON THE CARDS?
If MAS expects inflation to be picking up 18 months from now, they will probably have to move monetary policy now.
MS SELENA LING, OCBC's head of treasury research and strategy, on a possible Monetary Authority of Singapore policy shift.
In Malaysia, the ringgit's rally is expected to continue, sustained by rising oil prices and a stronger economy, said Mr Khoon Goh of ANZ.
Bank Negara has been tipped to raise interest rates early next year, which Mr Incalcaterra said would put Malaysia and Singapore at the head of the pack as regional regulators mull over strengthening their currencies. Still, respite seems a little way off for the soft Singdollar's rebound.
Market watchers expect two issues to boost the greenback: corporate tax reform and the United States Federal Reserve's interest rate hike. The Fed meets later this week.
Still, Mr Dominic Schnider of UBS Wealth Management noted: "The Fed rate hike in December is largely expected, so it will likely be a non-event. Hence, the focus is shifting towards the language of the Federal Open Market Committee meeting next week. A dovish hike would bode well for the Singapore dollar, while an indication towards multiple hikes next year could give the greenback more support."
Meanwhile, ANZ's Mr Goh noted in the last six years, the Singdollar has weakened against the greenback in December. It is on track to do the same this month. But, he added: "Any decline will likely be modest, given the strengthening Singapore economy."
Economists hope the Singdollar will make gains to counter an anticipated rise in inflation, especially with possible tax hikes, by lowering the relative costs of imports.
But drastic currency swings are not on the cards. Mr Schnider said the Singdollar should trade stably against the greenback and euro. While it looks set to strengthen against the yen but soften against the Australian dollar, the changes should be "in a 1 per cent to 2 per cent range over the next three months".
The Singdollar traded at $1.3535 to the greenback and one Singdollar could buy RM3.0199 as of last Friday.