With the fall of currency values in countries like Malaysia, Japan, and Australia - all neighbors of Singapore - there exists an erroneous appearance of increase in strength of the Singapore dollar. Reality is, the Singapore Dollar is merely falling at a lesser rate compared to the currencies of these countries. The US dollar sets the global precedent, and when compared to it, the Singapore dollar can clearly be seen to have hit a five-year low as 2015 heads toward a close.
What, then, can be expected for the Singapore dollar for the remainder of the year? What are the reasons for it's decline, when all surface indications show stability?
The Reaction To Weaker Economies and Influence From Those Economies Takes A Toll
The weakening currencies of it's neighboring countries may make for more affordable vacationing in those areas of the word as well as cheaper investments, but the Singapore dollar is most certainly affected by the negative currency conditions of the Japanese yen, the Indonesian rupiah, the Euro, and the Malaysian Ringgit. Each of these countries has seen their currency drop more than 15% during 2015. These countries provide more than 30% of Singapore's non-oil domestic imports, making them major trading partners, therefore the decline in their currencies will act to increase the cost of Singapore's goods. This will result in a further decline in currency value due to less competitive prices.
Not Since The Global Financial Crisis Has Singapore's Economy Seen Such Slow Growth
National Day (August 9) is the celebration of Singapore's transformation from a tiny fishing village into one of the richest countries in the world. Following National Day 2015, the Ministry of Trade and Industry stated that Singapore's economy had seen only a growth of 1.8% this year, as compared to the same time last year, and less quickly than the 2.8% increase seen in the first quarter of this year. Banks such as DBS and Credit Suisse are projecting a grim outlook through the end of 2015, referencing the strength of external "headwinds" expected to remain in effect as well as poor showings in export numbers.
A focal concern in the manufacturing sector with regards to the export market. Increased business costs combined with a limited labor market have left Singapore manufacturers struggling as they attempt to compete with their neighboring countries. Trade numbers via IE Singapore show that the country's overall trade has in fact been negative as far back as early 2014. Due to the decline in exports, it is anticipated that when the Monetary Authority of Singapore holds it's annual meeting in October, it may be decided to re-order current policy to allow the Singapore dollar to remain in a weak state for a longer period of time in order to strengthen the country's export market.
The USD Maintains It's Strong Growth
The consistently-strengthening US dollar will have a significant impact on the state of the Singapore dollar. Over the past month, Singapore's dollar was second only to Korea's Won in worst performance growth-wise. The Won fell 4.4% against the USD; the Singapore dollar fell 2.6%.
The Central Bank issued a rate-hike outlook dating back to 2014 that has served to strengthen the US dollar. Market expectations of a projected rate-hike for the current year has been responsible for it's strengthening state as well. It is these positive projections in favor of the US dollar which have kept it in an upward swing for an extended period of time, while at the same time placing a strain on other world currencies.
Overall, all indications are that the Singapore dollar will continue it's decline throughout 2015 with the strong likelihood that it will reach a seven-year low of 1.5222 (on March 3, 2009) when held against the US dollar.
Istvan Loh Wye Lung is a professional FX trader. He spends his free time researching relevant investment opportunities and analysing the markets.