However, the currency is beginning to meet up with its rivals amid speculation that strong price pressures will prompt the Monetary Authority of Singapore, the central bank, to take care of its appreciation rate settings as a part of a currency policy review due on Friday.
“We expect the SGD to maintain its advantage in the second half of the year as we do not expect MAS to aggressively reduce the slope of the S$NEER policy band this year,” said Alex Loo, macro strategist at TD Securities.
“The SGD should continue to benefit from an appreciation path within the monetary policy band, while accelerating growth and a recovery in global trade should make the SGD more attractive to investors.”
The central bank, which uses the exchange rate as its fundamental monetary policy tool, has allowed the Singapore dollar to understand against the currencies of the island’s fundamental trading partners this 12 months to combat inflation.
The central bank focuses on the currency’s nominal effective exchange rate, called S$NEER, which is allowed to fluctuate inside a selected policy band.
Core inflation in Singapore likely fell to three percent in June, in accordance with a survey of economists conducted ahead of information release on Tuesday.
The rate is forecast to fall to around 2 per cent next 12 months if there aren’t any further shocks, Monetary Authority of Singapore chief executive Chia Der Jiun said last week.
Singapore’s strong growth prospects also support the currency remaining on an appreciation path.
Gross domestic product accelerated within the second quarter, expanding by a faster-than-expected 2.9%, with the central bank expecting the economy to grow near the upper 1% to three% range forecast for this 12 months, at the same time as geopolitical tensions and better global rates of interest remain a challenge.
“Singapore’s GDP growth in Q2FY24 was still not the worst, so we suspect there is no need for MAS to ease monetary policy given the persistent inflation,” said Moh Siong Sim, foreign exchange strategist at Bank of Singapore.
“We expect the SGD to remain resilient compared to most of its Asian peers to the risk of a renewed USD strengthening ahead of the US election.”
