Singapore Can’t Escape The Asian Currency Wars (Long USD/SGD)

  • The yuan devaluation will put upward pressure on USD/SGD.
  • The MAS must react to keep their economy from contracting.
  • Singapore is very vulnerable to currency shifts due to a large import/export market.

Singapore, an economy known for its disciplined monetary and fiscal policy, has managed to get caught in the crossfire of a currency war with no easy way out.

Ever since Abenomics, Asian currency wars have been a dominant theme for macro investors. A currency war begins when one country decides to devalue their currency in order to stimulate export demand. But neighboring countries with stronger currencies have a harder time competing for exports so they begin to devalue as well. What ends up happening is a “race to the bottom” where both countries end up devaluing their currencies into oblivion in order to stay competitive in the global marketplace.

China is the last player to fire off a fresh round of devaluation. They want to remove the yuan’s de facto peg with the US dollar in an effort to stymie decreasing growth and debt problems. Singapore will need to follow in the footsteps of China if they wish to re-energize their economy and prevent a real slowdown. This will create upward pressure on USD/SGD, our trade of interest, as the Singapore dollar depreciates against the US dollar.

Due to China’s recent actions the Monetary Authority of Singapore, MAS, has had to take an easier stance on their own currency. Like many Asian countries, growth in Singapore has been stagnating at 2% per year and the MAS has had to lower their expectations for 2016. (Keep reading….)