Singapore Dollar Starts to Rebound

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An increase in the immunization rate and a rise in core inflation might prompt Singapore’s central bank to adjust its policy faster than its regional competitors.

Singapore’s comparative success in dealing with Covid-19 may soon set the local currency apart from its peers. All South-East Asian currencies have been under pressure against the greenback since the Federal Reserve’s last “dot plot” moved US rate-hike predictions forward.

Singapore’s new COVID-19 cases fall into insignificance compared to what’s happening throughout the world.

In Indonesia, the daily total reaches 50,000, while Thailand, Malaysia, and the Philippines report daily totals in the thousands.

Numerous Asian nations were affected by the COVID-19 epidemic as a result of their low economic performance. However, that’s not the case for certain countries. An investor survey by Reuters indicated that investors were shorting numerous Asian currencies, as coronavirus infections and deaths soared across the area, threatening the region’s economic rebound from last year’s recession. According to a biweekly poll of 12 respondents, investors cut their long bets on the Chinese yuan and Philippine peso. In addition to that, those investors who were new in the FX marketplace and have just opened a forex trading account, in April became bearish on the currencies of South Korea, Singapore, and Taiwan. The main reason behind this was the economic performance of the mentioned countries and the struggle of maintaining the stability of the national currency value.

Recent COVID-19 outbreaks in Taiwan and Singapore have resulted in social restrictions and a scramble to increase vaccination rates.

Malaysia was forced into a national lockdown until June 7 as a result of a spike in illnesses, while Thailand lowered its economic growth projection for 2021. COVID-19 infection rates in Asia are on the rise, according to DBS bank experts.

There is always the potential of another COVID outbreak, even with effective containment efforts.

Malaysia’s ringgit and the Thai baht have had their biggest short bets since April 8, while Singapore’s currency has seen its most negative market sentiment in over a month.

For the first time in more than two months, though, they became positive on the Indian rupee. This is despite a catastrophic second wave of infection and record-breaking mortality tolls.

“It’s not a bizarre decoupling from COVID destruction that rupee stability in the near term will bring. As a tactical gamble on the distribution of resources, policy assistance, and recovery prospects, “Analysts at Mizuho stated.

For the first time since late February, markets have turned cautiously optimistic on the Indonesian rupiah.

As a result of Singapore’s reasonably efficient immunization strategy, the economy should be able to reopen. Philippines, Thailand, Indonesia and Malaysia are among the countries with the lowest vaccination rates, with only 3 percent of their populations fully protected against Covid-19, according to statistics collated by Bloomberg.

After a 0.8 percent rise in Singapore Dollar in May, which was already the highest figure since long before the epidemic, core consumer prices are expected to have climbed 0.9 percent in June from a year earlier according to economists.

According to SEB’s Victorino, the Monetary Authority of Singapore (MAS) may adopt a more hawkish posture in the coming months.

Instead of targeting interest rates, the MAS regulates inflation and growth by adjusting the value of its currency in relation to the currencies of its key trade partners. As a general rule, tightening the monetary policy means increasing the slope of appreciation within a policy range that is not publicly stated.

Singapore’s growth this year might be higher than expected, MAS managing director Ravi Menon said last month.

A small slowdown in Singapore’s second-quarter gross domestic product (GDP) was reported last week, but experts still anticipate Singapore to reach its objective.

Bank Negara, which has warned its view “remains susceptible to considerable negative risks,” and the Bank of Thailand, whose authorities are prioritizing economic recovery after cutting their growth projection, contrast with Singapore’s policy makers’ bullish outlook.

As Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB points out, “the MAS is likely to be among the first central banks in the area to tighten its policies.” At the end of 2021, she predicts the Singapore dollar to climb and reach 1.31 against its US equivalent, compared to the closing figure of 1.3571 at the time of writing this.

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