Singapore dollar faces pressure from US tariffs, policy shift
The Asian currency, which is already weakening as the US dollar recovers, faces fresh tariff threats after President Donald Trump recently warned he may impose levies on pharmaceuticals and semiconductors, two of Singapore's key exports.
Economists at firms such as Barclays and Asia Decoded expect the Asian nation's central bank to move to a more accommodative policy setting this month to support the economy.
'The tariff uncertainty, with higher tariffs on pharmaceuticals likely Aug 1, could add to growth headwinds for Singapore in the second half,' said Moh Siong Sim, a currency strategist at Bank of Singapore.
The local dollar may weaken toward S$1.30 to the greenback in the near term, especially if rising levies stoke US inflation and delay Federal Reserve interest-rate cuts, he said. The currency was at S$1.2846 at 8.10 am on Monday.
Those concerns are echoed by Priyanka Kishore, principal economist at Asia Decoded. 'Singapore is not only at a disadvantage from the prospect of sectoral tariffs on pharmaceuticals and semiconductors, but may also see an increase in the base rate of 10 per cent on Aug 1,' she said.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Some strategists believe the Monetary Authority of Singapore will ease policy when it meets later this month, given inflation appears subdued. Economists predict data due on July 23 will show core inflation rose by just 0.7 per cent in June.
The MAS will flatten the slope of its Singapore dollar nominal effective exchange rate, or S$NEER, policy band by 50 basis points to zero in July, rather than waiting, Barclays Bank economists wrote in a note last week.
Unlike many of its global peers, Singapore's central bank manages inflation by adjusting the S$NEER policy band rather than altering interest rates.
With the S$NEER trading near the top end of the band, any flattening of the slope will cap the currency's relative strength to its major trading partners.
Easing path
'With the MAS likely to stay on an easing path and flatten the slope of the S$NEER this month, our bias is for further Singapore dollar weakness,' Asia Decoded's Kishore said.
While Singapore's central bank looks likely to ease policy, bets on Fed rate hikes have been pushed back as policymakers watch for tariff-related inflation, bolstering the US currency.
The Singapore dollar's use as a funding vehicle for carry trades may also weigh on its outlook.
Bloomberg Intelligence said this month that three of the four emerging-market exchange factor models it uses in its analysis have gone long the Indonesian rupiah versus short the Singapore dollar. BLOOMBERG
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
an hour ago
- Business Times
Vietnam sees Trump tariffs cutting up to a third of US exports
[HANOI] Vietnam estimates its exports to the US could decline by as much as a third if higher tariffs announced by US President Donald Trump take effect, an internal government assessment shows. Tariffs of 20 to 40 per cent would slash export revenue by up to US$37 billion, and hit the majority of Vietnam's key industries, including electronics, machinery, garments, footwear and furniture, according to a document prepared for Prime Minister Pham Minh Chinh's advisory council and seen by Bloomberg News. That figure assumes that firms in Vietnam would bear the full cost of the tariffs, according to a source familiar with the estimates, who added it's likely importers would need to cover some of that burden. The tech industry would face the biggest hit, with an estimated decline in exports of about US$15 billion, the document shows, stating that the tariffs pose 'a direct risk to the sustainability of the electronics supply chain'. Vietnam's total exports to the US amounted to about US$120 billion last year, according to official data. The report was dated Jul 11, just over a week after Trump announced a trade deal with Vietnam, and was compiled by a research unit of Chinh's advisory council. Vietnam has still not officially confirmed the tariff rates announced by the US president, and neither country has published official term sheets on the deal. Vietnam's Ministry of Foreign Affairs did not immediately respond to a request for a comment. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up Trump said that the US will impose a 40 per cent tariff on goods that are transshipped through Vietnam, a move largely aimed at curbing the re-routing of Chinese goods through the South-east Asian nation. That's put Vietnam in a tough position, given China is its biggest trading partner and main source of imported components used in goods such as AirPods and phones that are exported to the US. There's no clarity from the US on how it will determine transshipped goods and how the 40 per cent rate would be applied. The internal document from Vietnam contains some surprisingly direct language stating how the US tariff policy is aimed at reining in China. Trump was using it as a tool 'to restrain China's 'galloping' development and rebuild its position', the report said. Vietnam's leaders were caught off guard by Trump's declaration and have been seeking to lower the tariff rate, Bloomberg News reported previously. Since then, Trump has announced trade deals with Indonesia, the Philippines and Japan, and sent dozens of tariff letters to trading partners ahead of an Aug 1 deadline when higher US duties kick in. Trump had initially threatened to hit Vietnam, an export powerhouse that last year had the world's third-biggest trade surplus with the US, with a 46 per cent tariff, among the highest of its major trading partners. To address US concerns around so-called rules of origin of goods, Vietnam's trade ministry has taken greater steps to protect the 'Made in Vietnam' brand and toughen up trade fraud regulations. Under new draft guidelines released by the ministry, clearer rules will be set to determine the specific content of products and their origin. The guidelines include measures to assess the value-added content contributed by Vietnam and where the main production stages have been performed. It will also establish an inspection system and penalties for incorrect labelling. The internal document highlights the challenges facing Vietnamese companies in interpreting the deal. More effort is needed to 'clarify how the localisation proportion is calculated, and to persuade the US to factor in the share of imports from the US and other clearly sourced markets when determining origin', it says. BLOOMBERG
Business Times
2 hours ago
- Business Times
South Korea weighs US investment pledge to trim auto tariff
[WASHINGTON] The US and South Korea have discussed creating a fund to invest in American projects as part of a trade deal, similar to an agreement Japan struck on Tuesday (Jul 22) with US President Donald Trump, sources familiar with the matter said. The scope of the discussions was not immediately clear, but the US has been seeking pledges totalling hundreds of billions of US dollars. The talks remain fluid, the sources said, speaking on condition of anonymity to discuss details of the negotiations. Japan's deal saw the country agree to backstop a US$550 billion fund in exchange for dropping a threatened 25 to 15 per cent tariff. The discount also applied to automobiles, an important export for the Asian country's economy. The South Korea talks are similarly focused on reaching a 15 per cent tariff rate, including for autos, one of the sources said. The deal may also include a pledge by South Korea to purchase more goods in key sectors, one of the sources said, again echoing the Japan pact, which included an agreement to purchase Boeing planes and agriculture products. The White House declined to comment. The South Korean trade ministry also declined to comment. Trump has threatened to impose a higher general tariff of 25 per cent starting Aug 1, in addition to the existing levies on vehicles, vehicle parts and steel that are straining ties between Seoul and Washington. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up A Korean trade delegation is in Washington this week for talks, according to the Asian nation's finance ministry, and Trade Minister Yeo Han-koo is set to meet with US Trade Representative Jamieson Greer as part of those discussions. However, a planned '2+2' dialogue that was scheduled for Jul 25 with Yeo and Finance Minister Koo Yoon-cheol alongside Greer and Treasury Secretary Scott Bessent was postponed and will be rescheduled, the Korean side said. Commerce Secretary Howard Lutnick has suggested a US$400 billion figure in talks with South Korea, one of the sources said. Lutnick presented that same number to Trump as part of talks with Japan but the US president eventually negotiated the fund up to US$550 billion. Japan's economy is more than double the scale of South Korea, making equal US dollar-value pledges a tall order for Seoul. Some South Korean companies have already made significant investment pledges in the US. The chairman of Hyundai Motor visited the White House in March to announce a US$21 billion investment plan that includes an expansion of vehicle production in Georgia and a new steel plant in Louisiana. The deal with Japan threatens to create a competitive advantage for that country's automakers if Seoul is unable to reach a similar agreement. 'This really puts a lot of pressure on South Korea. If they can get 15 per cent, I'm sure they'd be thrilled, but they are in a different position than Japan,' said William Chou, deputy director of the Japan Chair at the Hudson Institute, a conservative think tank. That notion was echoed by the White House on Wednesday. 'We are in a situation where, for example, German cars are going to be at a disadvantage now, to Japanese cars, because it's a 25 per cent tariff on German cars. Same thing with Hyundais from South Korea,' White House trade adviser Peter Navarro said on Wednesday on Bloomberg Television. Navarro said the Japanese deal was best interpreted as the president 'doing a synergistic whole deal with the rest of the world'. 'This is just one part of that chess game,' he said. Trump, speaking at an artificial intelligence event earlier Wednesday, suggested that he would not go below 15 per cent as he sets so-called reciprocal tariff rates – while also indicating he would reward nations that removed trade barriers on US exports. 'The tariff is very important, but the opening of a country, I think, can be more important if our businesses do the job that they are supposed to be doing,' Trump said. 'Such openings are worthy of many points in tariffs.' BLOOMBERG
Business Times
2 hours ago
- Business Times
Asia: Markets extend gains on US trade deal hopes
[HONG KONG] Asian markets extended the week's gains on Thursday on optimism other countries will follow up Japan's US trade deal with ones of their own, with speculation building that the European Union is on course. Investors have been on a roll in recent weeks on bets that governments will eventually hammer out pacts with Donald Trump ahead of the US president's Aug 1 deadline. The mood has been upbeat since news that Japan had reached a deal to lower sweeping tariffs from 25 per cent to 15 per cent, including those on the country's crucial car sector. The breakthrough fanned hopes that others were in the pipeline. However, there is talk that the European Union is edging towards an agreement. Reports say Brussels could get something similar to Japan, with tariffs cut to 15 per cent - from the threatened 30 per cent. The Financial Times said the two would waive tariffs on some products, including aircraft, spirits and medical devices. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up That came after US Treasury Secretary Scott Bessent said negotiations were making progress, with talks planned later in the day between the bloc's top trade negotiator and his American counterpart. Analysts said a deal with Washington's biggest trading entity would provide a massive boost to equities However, failure to reach a deal, triggering Trump's 30 per cent levies on Aug 1, could cause havoc on markets, analysts warned. France has been loudest in insisting Brussels must show it is willing to deploy its trade weapon, known as the anti-coercion instrument - allowing officials to take measures such as import and export restrictions on goods and services. Neil Wilson at Saxo Markets warned that would end up 'effectively killing trade between the two... the nuclear option is on the table it seems, but for the moment expectation seems to be veering towards a deal'. After another record day for the S&P 500 and Nasdaq on Wall Street, Asia picked up the baton and ran. Tokyo piled on two per cent, having jumped more than three per cent on Wednesday on the trade deal, while Hong Kong continued its standout year with another advance. Shanghai, Seoul, Singapore, Wellington, Taipei and Manila also rose. Traders are also keeping an eye on developments in Tokyo after Japanese Prime Minister Shigeru Ishiba denied discussing his resignation with party elders on Wednesday, as speculation about his future intensified following a weekend election debacle. Despite the saga, the yen extended its gains, briefly hitting 145.86 per dollar as the trade deal allows investors to turn their attention to the Bank of Japan's policy meeting next week hoping for guidance on its next interest rate hike. The unit had been sitting around 147.90 before the deal. Bank officials have held off rocking the boat on the issue amid tariff uncertainty, but observers say the agreement can allow them to reconsider lifting in October. AFP
