Singdollar may rise further despite strong gains; parity with US dollar possible in future: Analysts
SINGAPORE: The Singapore dollar could continue to strengthen against the US dollar in the coming months, despite a recent surge in the currency pair amid signs of tariff de-escalation, analysts said.
They also said that parity between the two currencies is possible in the future, with one economist saying it could happen 'in our lifetimes'.
Their comments come as the Singapore dollar hovers around 1.29 against the US dollar. The Singapore dollar reached a 10-year high against the greenback last year, at around 1.28.
Mr Christopher Wong, an FX strategist at OCBC, noted that the Singapore dollar has strengthened about 5.8 per cent so far this year.
'This was due to a sharp USD sell-off and signs of tariff de-escalation,' he said on Wednesday (May 7), adding that hopes for a US-China dialogue and signs of progress on possible trade deals have reinforced the 'de-escalation thematic'. Other Asian currencies, like the Taiwan dollar, have also experienced a lift.
The US dollar has been weaker on the back of tariffs and softness internally in terms of expected growth, said Mr Saktiandi Supaat, head of FX research at Maybank.
'We observe that there is a diversification away from the USD and the SGD appears to be one of the beneficiaries of this theme,' he said, adding that the Monetary Authority of Singapore's (MAS) policy stance is also responsible for the steady appreciation of the Singapore dollar.
Mr Saktiandi, who is also a Member of Parliament, said Singapore's stability and strong fundamentals make its currency a more attractive option when markets look for alternatives to the US dollar.
FURTHER STRENGTHENING AHEAD?
Mr Saktiandi said the Singapore dollar has proven itself to be a 'regional safe haven of sorts'.
'We do expect the SGD to do well and continue to strengthen against the USD, as US exceptionalism fades and a broad diversification away from the USD on a flight to quality continues,' he said.
Maybank expects the currency pair to be at 1.2800 in the third quarter of the year and 1.2650 in the fourth quarter of the year.
OCBC's Mr Wong also expects the local currency to become stronger against the US dollar based on the belief that the tariff situation will not worsen and that the impact of the tariffs will be manageable.
The expectation is also premised on the US dollar continuing to soften and the US Federal Reserve continuing to ease interest rates.
'That said, given such a relative sharp move over the last few days, we should expect some calm to be restored,' he said, explaining that the pace of the sell-off should slow.
COULD S$1 BE EQUAL TO US$1?
Singapore's strong fundamentals could mean the local currency reaches parity with the greenback 'in our lifetimes', said Mr Mansoor Mohi-uddin, chief economist at Bank of Singapore.
He noted in a May 5 note that the Swiss franc hit parity with the US dollar after the 2008 financial crisis, and that both the Swiss currency and the Singapore dollar have risen over decades against the greenback.
Both Switzerland and Singapore are small, open economies with large financial centres, and attract major capital flows that cause their currencies to appreciate, said Mr Mohi-uddin.
A global USD crisis could push the Singapore dollar toward parity suddenly, but it's 'more likely to happen without a crisis', he told CNA.
He acknowledged that the MAS acts against excessive strength in the US dollar and that trade wars are a major risk, but said parity is still possible.
'If Singapore continues to run very large current account surpluses and continues to attract very large capital inflows owing to its status as a global financial centre, then the underlying path of the SGD will remain upwards against the USD,' he said.
'Eventually the SGD will therefore hit parity against the USD.'
Mr Saktiandi said it is 'not inconceivable' for that to happen, given the broad appreciating trend.
But he warned that there are 'potential risks' that may be difficult for Singapore to weather and that achievements should not be taken for granted. He also said the US dollar's dominance and status as a reserve currency will continue to support it.
Mr Wong of OCBC said the rise in US protectionist measures have increased the uncertainty in economic policy, and that challenges the greenback's status as the world's primary reserve currency.
The US dollar is unlikely to be displaced in the short term, he said, but investors may shift their money out of US assets or reduce their exposure to the currency, and that would weigh on it.
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