The Singapore Dollar: a Dark Horse Among Exotic Currencies?

The Singapore Dollar: a Dark Horse Among Exotic Currencies?

2022-10-06 • Updated

In September 2022, USDSGD almost retested its peak of March 2020.  The pair spiked above the 1.4400 level, driven by the strong US Dollar. Despite the obvious dominance of the USD, analysts believe that the Singapore dollar may be the one exotic currency worth our attention. Why do they share this opinion, and should we believe them? Let’s see.

Safe-haven?

The Singapore dollar, which some analysts refer to as the safe-haven currency in the South-Asian region, has relatively good fundamentals compared to other exotic peers.

First, Singapore still has a triple-A sovereign credit rating. That is, four rating agencies gave the country high ratings. In general, that means that Singapore is a creditworthy country with a minimal probability of default. It also says that the country’s bonds are the safest possible investments.

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Analysts also mention that Singapore has a big budget surplus, which is set to rise in relation to GDP up until 2027.

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Given the data above, the Singapore dollar is set to strengthen in times of uncertainty, as investors will choose it for saving their capital instead of less resilient currencies. Some analysts even claim that the SGD has the ability to replace the yen as a safe haven. The economic picture now proves it, as the Singapore dollar has been consolidating at nearly the same levels against the US dollar since 2018 compared to the Japanese yen.

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There are still certain doubts that the Singapore dollar will replace the Japanese yen as the most popular Asian safe-haven. The reason behind them lies in the liquidity of the asset. The currency is not widely traded as the JPY or any other currency of big economies.

MAS monetary policy

Now let’s look at the monetary policy of Singapore’s central bank. The Monetary Authority of Singapore (MAS) has a specific approach to monetary policy. Instead of traditional interest rates, the bank measures the value of the SGD against the weighted average of several foreign currencies and uses this metric as an intermediate monetary policy target. The exchange rate has a bigger influence on inflation in Singapore than the interest rate used by other central banks. So, the MAS allows the Singapore dollar to appreciate against other currencies as it pulls the cost of imported goods down.

The next meeting of the MAS will be in the middle of October. During the meeting, the regulator is expected to continue its tightening policy amid high inflation that hit a 14-year high in July. As the bank conducts monetary policy by guiding the exchange rate, we may see a stronger SGD soon.

However, let’s not forget that the world has turned to the USD these days. As a result, the Fed policy and the US inflation figures are the main determinants of the performance of USDSGD.

Technical Analysis

On the weekly chart, USDSGD has risen above 1.4400 but could not hold its position and corrected to the downside. After the retest of the upper border of the ascending channel, the pair may make another attempt to break the 1.44 resistance line.

If USDSGD breaks below the border, it will indicate a further slide towards the next support at 1.4070. After that, the support at 1.3950 will be in focus.

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Conclusion

If you are looking for an exotic currency pair to trade, look at the USDSGD. Apart from other exotic pairs, USDSGD may provide interesting moves due to the optimistic fundamental picture of the Singapore economy. 

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