Singapore Dollar: Expected to Remain Range-Bound Against US Dollar - Commerzbank

Commerzbank analysts Charlie Lay and Dr. Henry Hao hold the latest view that the US dollar/Singapore dollar (USD/SGD) pair will maintain a range-bound trading pattern in the short term. The pair has retreated from the previous 1.2800 level and is currently trading near 1.2700, driven jointly by broad US dollar weakness and improved global risk sentiment.

**Weaker US Dollar Provides Downward Pressure**

The recent soft performance of the US dollar index has provided support for the Singapore dollar. Growing concerns over a slowdown in US economic growth may weaken the Federal Reserve's hawkish stance in the future, thereby limiting the upside for the US dollar. Singapore banks have previously noted that the US dollar's strength could reverse in 2024. Against this backdrop, the Singapore dollar's nominal effective exchange rate remains firm, continuing to trade in the upper half of its policy band, reflecting the robustness of the Singapore dollar's own fundamentals.

**Range Pattern Hard to Break in the Short Term**

Despite the weaker US dollar benefiting the Singapore dollar, the momentum for a significant appreciation in the exchange rate remains insufficient. The Monetary Authority of Singapore is expected to maintain its current foreign exchange policy at the upcoming policy meeting, as core inflation remains elevated and it is too early to ease policy. This stable policy expectation, coupled with uncertainties in the global economic outlook, leaves the USD/SGD pair lacking catalysts for a one-way move. Singapore banks have adjusted their 3-month, 6-month, and 12-month USD/SGD forecasts to 1.37, 1.35, and 1.33, respectively, indicating their view that the Singapore dollar will gradually strengthen modestly in the future, though the process may be relatively slow.

**Risk Sentiment as a Key Variable**

Changes in global risk appetite are the core factor influencing the pair's short-term fluctuations. If market sentiment continues to improve, it will favor risk-sensitive currencies like the Singapore dollar. However, relatively weak economic data from China and Europe may intermittently boost safe-haven demand for the US dollar, thereby confining the exchange rate within a relatively fixed range.