Singaporean dollar likely to remain on weakening trend, USD/SGD to trade at 1.4 by end-2016

In mid-2011, the Singaporean dollar had appreciated to a record high against the US dollar to 1.20. The currency remained within a stable range of 1.20 and 1.30 between mid 2011 and mid-2014. But since mid-2014, the Singaporean dollar started to ease markedly because of weakness in regional currencies, particularly CNY, the stronger USD backdrop, lower inflationary pressures because of subdued energy prices and the declined in house prices, and decelerating growth momentum, stated Commerzbank in a research note.

In the future, the SGD is likely to depreciate against the US dollar because of the sluggish growth outlook, likelihood of strong USD backdrop to persists, possibility of inflation to stay weak, and knock-on effects from the depreciation pressures in the regional currencies, especially the Chinese yuan. This is mostly because the SGD NEER is managed against a basket of Singapore’s key trading partners, according to Commerzbank.

The SGD NEER would be markedly influenced by the three most vital currencies in the region – MYR, CNY and to a lesser extent, IDR. In spite of sharp increases in SGD against  the Malaysian ringgit and the Indonesian rupiah last year, a major reversal is unlikely against these two currencies in 2016 given Singapore’s solid fundamentals, strong institutions, lingering downside pressures for both IDR and MYR and  Singapore’s status as a regional financial hub, noted Commerzbank.

“We forecast USD-SGD at 1.40 by end-2016”, added Commerzbank.