OCBC's Sim Moh Siong and Christopher Wong note that USD/SGD is rebounding alongside a stronger US Dollar, supported by higher US Treasury yields and firmer Fed hike expectations. The pair's relatively higher beta to broad USD moves suggests further US Dollar Index (DXY) strength could lift USD/SGD near term, though they expect SGD's underlying resilience and the S$NEER policy framework to temper the magnitude of any move. "USD/SGD traded higher alongside the rebound in USD, as higher US Treasury yields and firmer Fed hike expectations lend support to the dollar." The recent move reinforces USD/SGD's relatively higher beta to broad USD moves compared with several ASEAN FX peers, with a more sustained DXY rebound potentially seeing USD/SGD extend higher in the near term. However, mild bearish momentum on daily chart faded while RSI rose, with risks skewed to the upside in the interim. The currency currently faces resistance at 1.2740 levels (61.8% fibo retracement of 2026 low to high), 1.2760/90 levels (50% fibo, 21 DMA), while support remains at 1.2680 (76.4% fibo), 1.2650.
The Singapore dollar has established the strongest inverse correlation with the US dollar in Asia, with its 120-day correlation dropping to -0.94, according to Bloomberg reports. This represents the most inverse link since May 2024 and the most negative correlation in the region, signaling that the Singapore dollar is moving in almost direct opposition to the US currency. The currency has gained 1.8% this quarter to lead Southeast Asia, positioning it as a key beneficiary of the resurgent dollar debasement trade as political and fiscal uncertainty in the US prompt investors to offload the greenback for alternative assets. However, recent developments show a bit of give-back in that trade, with investors welcoming, although not-so-warmly, the US Treasury's decision to up its long-dated bond buying to effectively lower rates. The so-called 'debasement' trade will be put to a further test later this week, with Kevin Warsh's speech on Friday potentially proving decisive for the dollar and by extension, gold forecast.
MUFG's Lee Hardman reports that rising energy prices are pushing market expectations for further Federal Reserve tightening, with 17bps priced for the September 16th FOMC meeting. The 2-year US Treasury yield climbed to a fresh year-to-date high at 4.41%, helping to strengthen the US dollar. Fed Governor Michael Barr repeated the Jackson Hole message, stating that "if trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance. However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates." A September rate hike is not yet a done deal but soft NFP and CPI reports for August are likely required to prevent a hike. As per MUFG analysis, a Fed hike this month would pose upside risks to US dollar forecasts especially if it marks the start of a tightening cycle. Recent developments show Kevin Warsh's hawkish remarks on Friday prompted traders to increase their bets that the US Central Bank will raise rates at its September 15-16 meeting, with Fed funds futures traders now pricing in a 63% chance of a hike for September, up from just 35% prior to Warsh's remarks.
The Monetary Authority of Singapore reinforced the currency's strength in July by tightening monetary policy in a second straight review, increasing the rate of appreciation of the local dollar against the trade-weighted currency basket, as reported by Bloomberg. This decision comes amid a strong economic backdrop, after the government upgraded its growth outlook for this year to 4.5%-5.5%, from 2%-4% set in February. Galvin Chia, an emerging Asia strategist at Société Générale SA, expects the local currency to be driven by its tight inverse link with the greenback, limited central bank intervention, a booming AI export sector, and robust volatility-adjusted returns during US dollar weakness.
ANZ forecasts the Singapore dollar to appreciate to 1.26 per dollar by the end of the year, compared to its current trading level around 1.27, as reported by Bloomberg. Khoon Goh, head of Asia research at Australia & New Zealand Banking Group, noted that currencies of economies with a large current account surplus and strong fiscal positions will benefit, with the Singapore dollar in particular benefiting from its monetary policy tilted toward exchange rate appreciation. Wei Ming Cheong, a portfolio manager at Eastspring Investments, highlighted that Singapore's AAA credit ratings, underpinned by its strong fundamentals and fiscal strength, mean Singapore dollar-denominated assets are likely part of that wider set of markets that investors evaluate when they rebalance their portfolio.
