Singapore tightening puts currency on track to lead gains

THE search is on for Southeast Asia’s top-performing currency for the year and the odds are tilting in favor of the Singapore dollar. It’s early days yet but the city-state’s currency looks like a strong contender for the crown after the central bank’s hawkish shift last week. Quickening inflation and growth are fueling bets for further tightening, boosting the Singapore dollar’s prospects.

The city state’s success in tackling the pandemic may also add to the Singapore dollar’s haven appeal. Regional currencies are vying for inflows at a time when investors are turning more selective amid growing signs that the Federal Reserve will tighten at a faster pace.

The Singapore dollar has climbed about 1.5 percent since sliding to the lowest in over a year in November. The gains could quicken if the central bank, which uses foreign exchange as a tool to stabilize prices, tightens again at a scheduled meeting in April.

The government said it was reviewing its forecast ranges for inflation after consumerprice gains accelerated to an eight-year high in December. A strong retail sales print on February 4 could add to signs that growth is quickening.

Another contender for the title of Southeast Asia’s top currency is the Thai baht, according to Irene Cheung, a strategist at Australia & New Zealand Banking Group Ltd. The currency may get a boost from the resumption of a quarantine-free visa program for vaccinated visitors next month although the Bank of Thailand ’s dovish stance is likely to counter the gains. The Indonesian rupiah, which was the region’s most resilient currency last year, is also in the running given the central bank’s pledge to normalize policy as its US counterpart hikes. But the currency is vulnerable to outflows if sentiment shifts as witnessed in the first quarter of 2020.

“We like the rupiah to outperform its regional peers this year given the nation is a commodity exporter, with strong external balance, ample real rates support and a central bank which has prudent monetary policy,” said Divya Devesh, head of Asean and South Asia FX research at Standard Chartered Bank SG Ltd.