Amid tense Iran situation, the Singapore dollar remains strong, while Asian currencies generally weaken.

Investing.com – UBS Group data shows that since the outbreak of the Iran conflict, the Singapore dollar has become one of the most resilient currencies in Asia, down only 1.6% against the US dollar, while the average decline of Asia-Pacific currencies is 2.3%.

Strategists Teck Leng Tan and Dominic Schnider wrote in a research report released on Monday that the relative strength of the Singapore dollar can be attributed to Singapore’s robust fiscal position and the unique policy approach of the Monetary Authority of Singapore (MAS) in using currency appreciation to combat inflation.

Since the conflict began on February 28, Asian currencies have generally weakened under pressure from rising oil prices, impacting most Asian economies that are net energy importers, except for Australia, Indonesia, and Malaysia. Safe-haven sentiment has also prompted global investors to reduce exposure to Asian financial markets.

Singapore’s fiscal strength provides room to buffer the impact of rising energy prices. According to the 2026 budget, the government expects a fiscal surplus of 15.01 billion SGD for the fiscal year ending March 31, 2026, accounting for 1.9% of GDP.

This strong position allows policymakers to flexibly support the economy, similar to the 1.5 billion SGD support plan provided during the Russia-Ukraine war in 2022.

The MAS’s approach of using currency strength to fight inflation sets it apart from other global and regional central banks.

While debates continue over whether tightening monetary policy when oil prices rise due to supply shocks rather than demand is wise, the MAS may welcome a strong and stable Singapore dollar to ease the cost of imported energy, unless sustained high oil prices severely weaken global growth.

UBS maintains its USD/SGD target, at 1.25 in June, 1.25 in September, 1.24 in December, and a new target of 1.24 in March 2027. The current level is between 1.27 and 1.28.

Strategists expect the MAS to accelerate the appreciation of the Singapore dollar later this year to tighten policy, contrasting with the Federal Reserve, which is expected to further ease policy amid a soft labor market and controlled inflation.

The three-month Singapore Interbank Offered Rate (SIBOR) is expected to remain around a three-and-a-half-year low of 1.0% to 1.2% this year.

Domestic interest rates remain a secondary feature of the MAS’s exchange rate policy. In the context of investors seeking stability or a stronger Singapore dollar leading to capital inflows, local interest rates may stay low.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.