The Monetary Authority of Singapore (MAS) added fuel to the volatility with another surprising aggressive policy tightening. USD/SGD fell sharply post-announcement but the Fed and the USD will remain the key drivers and the bias is still to the upside to year-end, economists at Commerzbank report.

Another surprising tightening

“MAS raised the mid-point of the SGD NEER to the prevailing level. It was the second off-cycle announcement and the second one-off appreciation in the SGD NEER. It highlights continued concerns over inflation and the urgency to prevent a wage-price spiral. This is particularly given rising wages pressures and the tight labour market despite the easing in border controls post-covid. Q2 GDP grew 4.8% yoy from 4% in Q1.”

“Looking into next year, the Fed Fund Futures are pricing in a 50 bps rate cut by end-2023. This could provide some reprieve for SGD and Asian currencies in general. At the same time, however, it may be premature to expect smooth sailing for Asian currencies in 2023. They would have to contend with a less favourable and slowing global growth. Under these circumstances, we could continue to see SGD outperform the region given its sound fundamentals and its safe-haven status. 

“Near term, we could see USD/SGD head towards the 1.43-1.45 area by year-end before pulling back as recession fears in the US kick in and supersede rate hike expectations.”

Also read: USD/SGD should revisit the 1.41 handle soon – TDS