Regional Economic Optimism Shifts Investor Preferences
Major global banks are turning bearish on the Singapore dollar (SGD), citing a stronger regional economic outlook and diminishing demand for the currency’s safe-haven status.
Shifting Market Strategies
Goldman Sachs recommends shorting the Singapore dollar against the Malaysian ringgit, highlighting that the Monetary Authority of Singapore (MAS) appears to have concluded its tightening cycle. Similarly, Societe Generale suggests shorting the SGD versus the offshore yuan, leveraging China’s economic reopening to favour the yuan over Singapore’s currency.
From Strength to Decline
The shift marks a reversal from 2022 when the Singapore dollar outperformed its regional peers, strengthening against the US dollar. While the SGD has gained 1.3% against the greenback in January 2023, it lags behind other Asian currencies such as the Australian dollar, Thai baht, and Japanese yen, which are recovering after being oversold.
Technical Signals of a Pullback
Momentum indicators, including slow stochastics, reveal the Singapore dollar is in overbought territory, suggesting a potential short-term correction.
Key Factors Driving Sentiment
Goldman Sachs analysts, including Danny Suwanapruti, argue that MAS policy adjustments, coupled with the anticipated impact of the goods-and-services tax hike, are already priced into the SGD. Societe Generale’s strategist Vijay Kannan points to China’s reopening as a catalyst for reduced demand for Singapore’s haven currency, predicting further declines relative to the yuan.
With regional currencies gaining strength amidst improving economic conditions, the Singapore dollar’s status as a safe haven may continue to wane in favour of risk-on strategies in Asia.
