Currency policy in the spotlight as Singapore dollar bows lower to the USD

The weakness will continue in 2015.

The Singapore dollar’s weakness against the USD is expected to continue well into 2015, putting the Monetary Authority of Singapore’s currency policy in the spotlight.

According to UBS, there is a growing expectation that the MAS will ease its currency policy during one of its meetings in 2015.

Though the SGD’s recent weakness is well within the MAS’ policy band, UBS notes that there is still plenty of room for the SGD to fall within the policy band and hence against trading partner currencies and the USD.

“Analysis by UBS currency strategist Max Lin shows much of the decline in the Singapore dollar against the US dollar was driven by the rise in the USD against Singapore's trading partner currencies. We expect i) continued US dollar strength, though at a reduced pace, ii) pressure on the Singapore economy from higher US yields and iii) the MAS to ease currency policy during 2015. We reckon that will put the SGD Nominal Effective Exchange Rate (NEER) in the lower half of the MAS' policy band at end 2015. Consistent with this, we project USD-SGD 1.35 by end 2015,” the report stated.