Singapore dollar set to gain despite hawkish Fed, analysts say

Unlike many of its global peers, MAS uses the exchange rate rather than interest rates as its primary monetary policy tool. The central bank manages the Singdollar against a basket of currencies of its major trading partners through the S$NEER framework, allowing the currency to fluctuate within a policy band.

Investors will closely watch Singapore’s May core inflation data, due on June 23, for clues on whether price pressures have intensified in recent months and how that could influence the MAS’s policy decision at its end-July meeting. Singapore’s core CPI, which is the measure the MAS focuses on, is projected to rise to 1.6 per cent in May from 1.4 per cent in the previous month, according to median estimate in a Bloomberg survey.

A faster pace of appreciation in the Singapore dollar’s nominal effective exchange rate S$NEER or would also help contain imported inflation and keep price expectations anchored, Goh said.

Maybank Investment Bank also sees the Singapore currency getting a boost from an expected MAS tightening in July, when it believes the authority may steepen the slope of its policy band by another 50 basis points. Such a move would be supported by economic growth that remains above potential, said Saktiandi Supaat, Maybank’s head of forex research.

Similarly, Skandinaviska Enskilda Banken sees the Singdollar at 1.26 by year-end. 

“We see the dollar bounce to be limited with market re-pricing a hike this year,” said Eugenia Fabon Victorino, head of Asia strategy at the Swedish bank. “From there, we expect global growth to be supportive of Asian currencies, thus allowing the Singapore dollar to rise.” BLOOMBERG