Singapore Dollar: Upside Risks Against USD Persist — UOB

After a significant decline, the USD/SGD pair has entered a consolidation phase in the short term. UOB FX strategists Guo Shiliang and Lee Shu En stated in their latest report that despite the dollar's rebound from the low of 1.2752, which has alleviated immediate downward pressure and may first consolidate within the 1.2760-1.2795 range, the overall trend has not reversed.

**Downward Pressure Continues to Accumulate**

The bank maintains its view since the beginning of this month that the dollar remains exposed to downside risks. The report emphasizes that the dollar has broken below the key level of 1.2765, hitting a low of 1.2752, which opens room for further declines toward the 1.2740 threshold. As long as the exchange rate fails to break above the resistance near 1.2810, the bearish bias will remain intact. Previously, the dollar index hovered around the 99 level, reflecting the overall weakness of the dollar.

**Singapore Dollar's Fundamentals Supported**

The resilience of the Singapore dollar partly stems from its unique monetary policy framework. Unlike most central banks, the Monetary Authority of Singapore manages inflation by guiding the appreciation of the local currency's nominal effective exchange rate, rather than adjusting interest rates. Market reports indicate that, amid high core inflation in Singapore, several international investment banks are betting that the central bank may further tighten policy in October, providing additional support for the Singapore dollar. However, Divya Devesh, an analyst at Standard Chartered, has cautioned that if the Federal Reserve maintains a hawkish stance, the USD/SGD pair could still edge higher.

**Short-Term Focus on Consolidation Range**

In summary, UOB believes that the dollar's current rebound is a technical correction after an oversold condition, not a trend reversal. In the near term, the market will closely watch the effectiveness of the 1.2810 resistance level. If the exchange rate remains capped there, it may build momentum to test and break below the 1.2740 target. Conversely, an unexpected break above this resistance would signal that the current downward pressure has eased.