Singapore dollar emerging as safe haven for US dollar diversification

It is considered one of the safest and stable currencies in Asia.

The Singapore dollar is increasingly being viewed as a regional safe-haven currency, with analysts at Julius Baer forecasting further gains in the months ahead.

Julius Baer’s economists expect the currency to hold at $1.28 against the US dollar in the next three months, before strengthening to SGD1.25 within six months, supported by continued weakness in USD.

The Singapore dollar, together with the Swiss franc, is the only major currency to have consistently posted positive 10-, 20- and 30-year spot returns against the US dollar.

Within Asia, it is also the best-performing currency against the US dollar in the past 20 years, having risen 29.3% since 2000, closely followed by the Thai baht with spot returns of 28.3%.

The Monetary Authority of Singapore manages the currency through a “basket, band and crawl” framework, which has allowed it to withstand major shocks from the Asian Financial Crisis to the Covid-19 pandemic.

Its role as a financial hub has added to steady inflows that underpin the exchange rate.

“While there is arguably still some way to go before the Singapore dollar can claim to be a global haven the same way the Swiss franc is – due to its relatively short trading history and some say, the managed nature of the currency which limits market speculation, large scale positioning, and by implication, liquidity and depth – it is nevertheless recognised as one of the world’s major currencies,” Jen-Ai Chua, Equity Research Asia at Julius Baer said.

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