Singdollar to widen gap with regional currencies; stronger currency could weigh on exports: Analysts

MAS said on July 27 that it will increase “very slightly” the rate of appreciation of the Singapore dollar’s trade-weighted value.

SINGAPORE – The Singapore dollar is expected to continue strengthening against regional currencies, including the yen, in 2026, after the central bank surprised markets by tightening monetary policy for the second consecutive time since April.

The Monetary Authority of Singapore said on July 27 that it will increase “very slightly” the rate of appreciation of the Singapore dollar’s trade-weighted value, allowing it to strengthen against an undisclosed basket of currencies.

While a stronger Singdollar would lower import costs and boost Singaporeans’ spending power abroad, it could also increasingly hurt exporters if regional currencies remain weak.

Zavier Wong, market analyst at eToro, said: “When we look at our neighbours, many are moving in the opposite direction by holding softer currencies to protect their own exports... Whatever room is left for the Singdollar to run will get amplified against that sort of backdrop.”

He added that further policy tightening could not be ruled out, as MAS expects inflation to remain elevated, which could keep the Singdollar strong.

“MAS has always tried to weigh two things against each other here and that is, keeping imported inflation in check versus keeping exports competitive,” he said.

“A persistently strong Singdollar helps the former and hurts the latter. There is no getting both at once.”

While the widening gap between the Singdollar and its regional peers is not yet a major concern, this could still erode Singapore’s price competitiveness over time, as trade effects filter through the economy, said Wong.

Oriano Lizza, sales trader at CMC markets, is expecting the Singdollar to remain one of Asia’s strongest currencies over the next 12 months.

But rather than expecting a one-way appreciation story, investors should anticipate more nuanced currency moves, driven by country-specific fundamentals, diverging central bank policies and the global growth outlook, he said.

The Japanese yen is among the regional currencies expected to remain volatile against the Singapore dollar, despite intervention by Japan and the US to support the currency.