Pressure mounts for vulnerable SGD as regional currencies stumble

It will experience greater weakness against the greenback.

The Singapore Dollar will remain under pressure in coming months as regional currencies continue to weaken, a report by BMI Research revealed.

“The minefield in which the SGD is navigating is unlikely to improve in the near future, and it is for this reason that we expect the currency to fall to SGD1.3900/USD by the end of the year,” BMI Research said.

Although the SGD enjoyed a brief respite in April to May, BMI Research believes that the aggressive depreciation of many of its trade-weighted peer currencies will cause the SGD to further weaken against the greenback.

For instance, the Malaysian ringgit has lost 20.2% versus the USD over the past year, while the Indonesian rupiah has slipped by 15.9%. Other currencies such as the euro and the Japanese yen has fallen by 17.5% and 20.9% over the past year.

Altogether, these four countries comprise approximately 31.0% of demand for Singapore's non-oil domestic exports (NODX), and therefore are likely to have prominent positions within the SGD's trade-weighted basket.

“To be sure, the currency remains fundamentally supported by Singapore's very high current account surplus, which we forecast to actually rise to 20.1% of GDP (versus 19.1% in 2014) owing to significantly lower oil prices. Nevertheless, the Singapore dollar is susceptible to a wide range of other factors which have conspired to overwhelm the appreciatory effects of the country's large external surplus, and we believe that these factors will continue to dominate into 2016. As such, we have downgraded our average forecast on the SGD to SGD1.4100/USD in 2016, from SGD1.3700/USD previously,” BMI Research said.