Singdollar Could Be Seen Again as a Funding Currency After MAS Holds Policy, Analysts Say

Joey Chew, head of Asia foreign exchange research at HSBC, noted that the S$NEER fell by nearly 10 basis points in HSBC’s model and was about 1.4 per cent above the midpoint of the band. The decline was modest, she said, because the S$NEER had not risen much going into the policy statement. “Given that the next MAS meeting is only in late January, we suspect the market will go back to seeing the SGD as a potential funding currency in the region,” she wrote. A funding currency is one that investors borrow, because of its low interest rates, to buy higher-yielding assets elsewhere. Chew said the Singdollar has faced downward pressure, partly from its low interest rates, with the S$NEER’s implied yield at about -1.6 per cent.

Bank of America analysts Ang Kai Wei and Abhay Gupta also saw the surprise as keeping interest alive in shorting the S$NEER, noting that the Singdollar’s low volatility and position near the top of the policy band could keep investors interested in betting against it, even though the trade earns only about 40 basis points a year in interest difference.

Chew said MAS’ foreign exchange reserves have fallen quite sharply in recent months after adjusting for redemptions and maturing long FX forward positions, and that until MAS does more unsterilised intervention and US rates plateau, FX forward points may be hard to push higher. She expects the Singapore Overnight Rate Average (SORA), a key short-term interest rate benchmark, to stay around 1.2 to 1.4 per cent. MAS could raise the slope in early 2027 if oil prices stay elevated through the fourth quarter, imported food prices rise because of El Nino, or the AI investment boom proves more durable than thought, she said. The BOA analysts also expect a “calibrated tightening” in January 2027.

Maybank’s FX research team said it remains bullish on the Singdollar, as the credibility of Singapore’s institutions is an increasingly scarce commodity. The USD-SGD pair traded at 1.2796 before the decision and 1.2804 after, edging up to 1.2810 later. DBS senior economist Chua Han Teng and senior FX strategist Philip Wee noted the pair has been remarkably stable within a 1.26 to 1.30 range, despite two tightenings in April and July and the US Federal Reserve’s September hike, even as the US dollar index climbed to an 18-month high. The analysts forecast the pair at 1.2650 by the fourth quarter of 2026 and 1.2450 by the third quarter of 2027.