The Singapore dollar (SGD) is expected to weaken to $1.35 versus the US dollar (USD) for 2021, according to Fitch Solutions, to weaken further to $1.36 in 2022.
This is a downgrade from its previous forecast of $1.33 against the greenback for 2021 and $1.32 in 2022.
“The SGD has weakened in line with most other Asian currencies after the Fed’s hawkish surprise on June 16, and will likely trade in a weaker range between $1.35 per USD and $1.38 per USD for the remainder of 2021 and likely in 2022 as well,” Fitch said.
This is due to the risk-off sentiment sparked by the resurgence of COVID-19 infections across Asia, including the key economies of Indonesia, Malaysia, and Thailand.
The SGD also breached the key support level of $1.35 per USD on 8 July and has weakened since. The last time Singapore breached this level was in July 2018, during the initial phases of the US-China trade war.
“However, any weakness in the SGD should be capped by the economy being in a much more resilient position than other Asian markets, due to the fast progress in vaccinating the population,” it added. “This puts Singapore in a much more resilient position compared to most other Asian economies and the SGD could benefit from some degree of safe-haven flows from elsewhere in the region as the year progresses, limiting prospects for further depreciation beyond our identified trading range.”
For the long term, Fitch expects a strong recovery in exports to support the currency in 2022, but balanced by the risk of a potentially more hawkish US Fed if above-2% target inflation persists.
Fitch Solutions identified as a key risk the possibility of a COVID-19 variant that can bypass existing vaccines, which could force Singapore to implement further lockdowns.