Singapore Dollar: Upside Risks for USD/SGD Remain in Focus — UOB

Under pressure from US dollar selling, USD/SGD extended its overnight decline and is re-testing the 1.27 level. UOB FX strategists Quek Ser Leang and Lee Sue Ann said in their latest report that the pair's upside risks remain a key market focus. At the time of writing, the US dollar index was trading near 98.90, retreating from its earlier rebound off a two-month low, which may provide short-term support for the Singapore dollar.

**Weak US Dollar Dominates Short-Term Direction**

The key factor driving the FX market recently has been broad US dollar weakness. Earlier, the dollar index rebounded from a two-month low and traded above 99.50, fueled by a surge in US Treasury yields and Middle East geopolitical tensions. However, UOB's latest assessment shows that selling pressure has regained the upper hand, pushing USD/SGD off its earlier highs. Market reports indicate that this move aligns with the broad overnight decline in the US dollar, reflecting investors trimming long dollar positions ahead of macroeconomic data releases.

**Singapore Dollar's Fundamental Strengths**

On the domestic front, the Singapore dollar's solid performance is not coincidental. OCBC's analysis notes that the Singapore dollar, supported by its lower volatility profile and the Monetary Authority of Singapore's (MAS) relatively tight policy stance, should continue to outperform most regional peers. Although the currency is not entirely immune to broader US dollar strength and rising US Treasury yields, its robust export performance and sensitivity to lower energy prices provide an additional buffer for the exchange rate. Markets are closely watching the MAS's upcoming policy decision later this month, with expectations that it has room to hold rates steady, which would help stabilize market expectations.

**Technical Observations and Outlook**

Technically, USD/SGD is currently testing key support in the 1.27 region. UOB's view clearly places upside risks in the spotlight, suggesting that a break below this support could open the door to further downside. However, OCBC cautions that if the US dollar regains strength amid global risk-off sentiment, the pair could see renewed volatility in the near term. Overall, as long as the dollar index fails to hold firmly above the 99 level, the Singapore dollar may maintain a relatively firm trading range against the US dollar.