USD/SGD hits 3-year peak following Singapore Finance Minister’s remarks

The USD/SGD has smashed past the 1.40000 mark, hitting a three-year peak in the process.

On Thursday 20 February 9AM Singapore time, the currency pair rallied 0.28% to hit 1.40101, its highest level since February 2017.

Why is the USD/SGD rising?

According to IG Asia market strategist Pan Jingyi, the Singapore dollar (SGD) can be seen under pressure against the US dollar (USD) because of the 'double whammy’ of an expected MAS exchange rate easing in April, alongside a lowered GDP outlook for 2020.

UOB analysts also said the SGD has been weaker on a basket level in recent days, with the SGD Nominal Effective Exchange Rate (S$NEER) – Singapore’s monetary policy – falling by 0.06% at the start of the week.

Analysts had previously stated that the odds for the current greenback strength to extend to 1.4000 are not high. They had also expected the S$NEER to trade between -0.2% to +0.2% around the mid-point of 19 February, implying a USD/SGD range between 1.3888 and 1.3972.

This latest rally appears to have its roots in a boost that began over two weeks ago.

On Thursday 06 February, the USD/SGD shot up 0.36% to a five-month high of 1.38647, after the Monetary Authority of Singapore (MAS) released a statement saying that there was enough room within its currency policy band to accommodate an easing of the S$NEER as a response to weakened economic conditions caused by the 2019 Wuhan coronavirus (COVID-19) outbreak.

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Singapore Finance Minister: ‘exchange rate has sufficient band to move’

This stance was again reiterated by Singapore Finance Minister Heng Swee Keat in an interview with Bloomberg TV on Wednesday 19 February morning.

‘Our exchange rate has sufficient band for it to move as appropriate. MAS has signalled it has sufficient width in this band for the currency to move,’ said Mr Heng.

The S$NEER is a float regime that manages the Singapore dollar against a trade-weighted basket of currencies within a policy band.

If MAS were to tighten the policy band, there would be an appreciation in the Singapore dollar, and if they were to loosen the policy band, the pace of appreciation is likely to be reduced.

Singapore Budget 2020: Impact on the USD/SGD

Mr Heng also spoke about Singapore’s Budget 2020, which was revealed a day prior.

Singapore’s Budget 2020 will include a S$6.4 billion fiscal rescue package to help businesses and individuals cushion the blow caused by the COVID-19 crisis. These measures include S$4 billion allocated for the ‘Stabilisation and Support Package’ targeted at local employers and staff.

The government also projected an overall deficit for the coming financial year of around 2.1% of Gross Domestic Product (GDP).

IG Asia’s Pan says that while ‘the extraordinarily expansionary budget provides upside risks to the -0.5% to 1.5% 2020 GDP forecast, which itself is not premised on the budget, the heightened uncertainty is not giving the Singapore dollar much support’.

Still, Mr Heng is optimistic about the Singapore GDP. He said: ‘Our central scenario is still that we will have some positive growth this year. It all depends on what happens to the global economy in the coming months and that, in turn, depends on how far the virus outbreak spreads and how severe it is.’

However, Pan noted that some reprieve could come soon for the SGD, thanks to an elevated USD (now at a three-year high), which is expected to peak soon. Furthermore, with US yields still suppressed, the greenback will not be receiving ‘too much support’.

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