THE robust Singapore dollar is pushing against perceived policy limits and raising the odds of policy adjustment by the Monetary Authority of Singapore (MAS), although most analysts doubt that the needle has shifted enough to spur central bank action.
The Singdollar has been strengthening against a number of key currencies this year, with a notable pick-up after Britain's vote to exit the European Union, or "Brexit". Prevailing wisdom is that investors are seeking refuge in the currency from uncertainties surrounding the fate of Britain and the European Union.
Heng Koon How, senior FX investment strategist at Credit Suisse, said: "Since Brexit, the Singdollar has been relatively strong and has held firm and been unchanged at around 1.35 to the US dollar.
"This is simply because of the influx of safe-haven funds. Because of the strength of Singapore's fiscal and credit rating, the Singdollar is considered the region's foremost safe-haven currency."
But a strong dollar is inconvenient for Singapore's central bank, which said in April that it would seek to keep the Singdollar within a flattened policy band, also known as the Singdollar Nominal Effective Exchange Rate (NEER).
MAS's precise policy band for the Singdollar is unknown, but the consensus view among analysts' own estimates is that the current exchange rate is closer to the top than the bottom. OCBC's Emmanuel Ng reckoned that the Singdollar NEER was about 1.04 per cent above its midpoint; UOB's Francis Tan estimated that the rate was 1.3 per cent higher.
The Singdollar's strength may not abate so quickly.
DBS's Philip Wee, who noted some short covering ahead of US non-farm payroll numbers on Friday, expected Brexit to remain a significant variable for now.
"I think we're in the interim period. Everyone's waiting for (UK Home Secretary) Theresa May to be formalised as the next Prime Minister."
IG market strategist Bernard Aw said that his bullish outlook for the Singdollar hinges on whether MAS decides to ground the currency.
The consensus remains for MAS to stay the course despite pressure to make an adjustment.
Mizuho economist Vishnu Varathan said that his firm had previously expected MAS to stay the course, but it thinks that a "step adjustment" to depreciate the Singdollar makes sense, given the discrete nature of the Brexit shock, especially if inflation risk remains subdued. Larger shifts in the sterling and the Chinese yuan could justify recalibrating the Singdollar NEER.
"The call is close as of now, with our tilt slightly to inaction, but Brexit and China developments could easily sway things."
UOB's Mr Tan said that core inflation, which has been on an uptrend and was last at 1.1 per cent in May, supported the status quo. "Overall, we think there shouldn't be any move in October. Stick to current zero appreciation."
OCBC's Mr Ng said that the stronger Singdollar NEER has also been driven to a large part by the underperformance of the British pound, not an "across-the-board" outperformance against the trade-weighted basket of currencies that MAS uses to calibrate the currency. That would dilute calls for further accommodation.
Regardless of what the MAS does, and how Brexit develops in the immediate term, the Singdollar could yet return to earth.
Credit Suisse's Mr Heng expects the weaker Chinese yuan to drag the Singdollar towards 1.41 to the US dollar over the coming year. "For local Singapore investors who need to purchase US dollars against the Singdollar, current levels would be a good entry point.
"On the surface, US dollar strength may be counter-intuitive, given that the US Federal Reserve is unlikely to hike rates anytime soon after Brexit. However, the Singdollar has been kept stable by strong safe-haven inflows. Going forward, it is more likely than not to face renewed weakening alongside the weakness in the Chinese yuan."
In terms of technicals, Phillip Futures dealer Jerome Lee sees potential support around S$1.3313 and S$1.3350 per US dollar, and resistance at S$1.372 and S$1.385 per US dollar.