Singapore dollar set to weaken as MAS pivot comes into focus, say analysts

ZURICH – Singapore’s currency weakness against the US dollar is likely to endure amid expectations that its central bank pivots to easing and US tariffs ripple through the global economy. 

The Singapore dollar is already near a two-year low against the US dollar, and options data shows trading of bearish wagers is dominating the market in anticipation of the Monetary Authority of Singapore (MAS) adjusting its stance.

Investors wager that may take place on Jan 24, though a move later this year is also possible, which would allow more time to see how Donald Trump retaking the US presidency plays out. 

Singapore is one “of the most vulnerable economies to US tariff hikes in the Asean region”, said Mr Lloyd Chan, a currency strategist at MUFG Bank in Singapore. He predicts the MAS will ease policy in January by slightly reducing the slope of its currency band. 

BNP Paribas also sees an imminent pivot, with the currency set to slip to 1.40 over the year ahead. 

Currencies across Asia have dropped to multi-year lows against the US dollar, as investors brace themselves for an inflationary impact from US tariffs and pare expectations for further Federal Reserve easing.

The Singapore dollar touched 1.2789, its highest level in a decade, versus the greenback just four months ago – but has weakened steadily since, sitting at 1.3655 per US dollar as at 11.23am Singapore time on Jan 20.

While the MAS’ parameters for its currency band have stayed the same for more than a year, an abating of price pressures in Singapore has opened the door to a policy shift. Core inflation – which strips out the costs of accommodation and private road transport – has dipped. 

While the MAS doesn’t have an explicit inflation target, it deems a rate of just under 2 per cent, which is close to its historical mean, to be consistent with overall price stability.

The emerging consensus among analysts is that the MAS will pivot in 2025 and that the Singapore dollar will weaken, even if there is disagreement about how soon officials will change tack. 

MAS uses the Singapore dollar’s nominal effective exchange rate, referred to as S$NEER, as its main monetary policy tool rather than interest rates.

It allows the currency to move within a band, adjusting the slope, centre or width as needed to alter the pace of appreciation or depreciation. It does not disclose details of the basket, the band nor the pace of appreciation or depreciation – just whether they have changed.

DBS Group Holdings estimates the currency has already dropped to the midpoint of MAS’ band and will slip to 1.39 by mid-year. Goldman Sachs Group sees it at 1.38 on a six-month horizon, while both MUFG and Malayan Banking predict it will touch that mark in the first quarter. 

Barclays expects the MAS to adjust S$NEER in January, putting the Singapore dollar at 1.39 by the year end, according to strategist Lemon Zhang. The pair has risen faster than expected, “given the fast move in the dollar and US yields”. 

While the predicted drop in the currency is just a few cents on the dollar, it still stands to reduce returns for investors in the country’s debt market, where sales of local-currency corporate bonds hit an annual record $31.2 billion in 2024. Foreign borrowers accounted for about one-third of the deal volume in 2024, data compiled by Bloomberg shows.

DBS expects MAS to reduce the slope of the policy band only in April. The dollar-Singapore dollar cross should rise to 1.39 in the second quarter “due to the Fed’s cautious rate cut stance and Trump’s incoming tariffs on Singapore’s trading partners”, said DBS strategist Philip Wee. 

US trade policy also looms large for Singapore and its central bank, as MAS managing director Chia Der Jiun noted in November 2024.

China is one of Singapore’s largest trading partners, and Barclays estimated in September that the renminbi constituted roughly a 10th of the MAS currency basket. BLOOMBERG