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Sing dollar remains resilient amid emerging market turmoil

The Singapore dollar has remained resilient amid emerging market turmoil in the last week.

SINGAPORE: The Singapore dollar (SGD) has held up strong amid emerging market turmoil in the last week.

Its position as a relatively "safe haven" currency is buoyed by robust local current account surplus, and political stability.

Going forward, currency analysts expect the Sing dollar to continue to outperform its regional peers.

The Sing dollar is close to a 16-year high against the Malaysian ringgit at 2.62, and has been outperforming other regional currencies like the Indonesian Rupiah and Indian Rupee.

Francis Tan, economist at UOB, said: "The SGD is deemed as a 'safe haven' currency, and during situations where there are turmoil in emerging markets currencies, or even during some of the crisis, we'll tend to see some strong inflows into Singapore, so the demand for SGD has been going up and that also explains why we managed to keep the Sing dollar on a slightly positive front as well."

Currency analysts expect the Sing dollar to remain strong against regional peers.

But it is projected to continue declining against a strengthening US dollar as the Federal Reserve unwinds its loose monetary policy.

The currency movements are expected to impact domestic costs.

Mr Tan said: "Even though we think that the SGD will depreciate slightly against the USD to hit 1.33 by the end of 2014, now generally the Sing dollar -- due to our strong domestic position -- will appreciate against the currencies of our region, particularly the Malaysian Ringgit, the Indonesian Rupiah, and the Indian Rupee."

Khoon Goh, senior FX strategist at ANZ, said: "Against the USD, we still expect the SGD to depreciate. We are forecasting the SGD to depreciate towards 1.31 by the end of the year so that will introduce some element of cost increases for goods priced in USD.

“But for those imports coming from other parts of ASEAN, we think the out-performance of the SGD will result in some cheaper imports from those regions."

Apart from the effect of currency shifts on prices, Mr Tan said regional investments could take a hit.

He explained: "If you are an investor, e.g. a retail investor that invests in some of the assets, the assets can be equities or even properties in some of the regional countries.

“And if the Sing dollar is going to be appreciating against the currencies of these regional countries, now that would mean that the real total return of the assets would be losing value across time if the SGD appreciates against these other currencies."

The strengthening Sing dollar could erode the competitiveness of local exports.

But some economists said companies going through restructuring and moving up the value chain may be able to overcome the challenge. 

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