Current Singapore dollar strength unsustainable, says report

It will lose ground against the greenback in coming months.

The Singapore dollar is expected to depreciate against the greenback despite its current period of strength, according to a report by BMI Research.

Although the local currency is trading near its 12-month high due to broad US dollar weakness, BMI Research said that domestic monetary policy and poor macroeconomic fundamentals will eventually cause the Singapore dollar to weaken against the greenback.

“While we believe that there is little impetus for the US dollar to embark upon a renewed appreciatory run against broader Asian FX, the SGD remains poised to underperform against the USD as a result of a dovish MAS, a still-strong real effective exchange rate (REER), a difficult macroeconomic outlook, and a weakening Chinese yuan. Additionally, the Singapore dollar's technical picture suggests further near-term weakness,” BMI Research said.

The central bank’s decision to ease policy also makes it more difficult for the SGD to appreciate versus the majority of those currencies which comprise its proprietary basket.
“[This adds] to the likelihood that the SGD underperforms its regional peers over the coming quarters. Coupled with its still-high REER, the balance of forces on the Singapore dollar will be towards the downside over the remainder of 2016,” said BMI Research.