COMPARED to regional currencies, the Singapore dollar (SGD) has stayed strong above the rest. With the US interest rate hikes set to be carried out towards the end of the year, we are seeing more fund outflows from developing countries like Malaysia and Indonesia. These funds flow back towards developed countries have resulted in the appreciation of the SGD compared to the rest. This has caused the SGD to appreciate to historic highs. Although Singapore's growth seems to be dwindling, it remains more resilient compared to most and continues to fuel the SGD strength. However, in the midst of this currency strength, we find weakness and would think that in the coming Monetary Authority of Singapore (MAS) meeting in mid-October, we could be seeing some adjustments.

Although a strong SGD does have its advantages, it is not ideal from an economic standpoint. This comes from an angle that a strong SGD would result in weaker trade for Singapore. A strong SGD could benefit Singapore from cheaper imports of raw materials but this also weighs on demand as the goods become more expensive to export. Thus, could result in a worsening trade balance if the SGD strength is not kept in check.

As it stands, the SGD has recently reached an all time high of 3.1207 and 10,366 compared to both the Malaysian Ringgit (MYR) and the Indonesian Rupiah (IDR), respectively. Both these economies are Singapore's major trade partners which forms 18.7 per cent of total trade. If the SGD is kept too strong compared to these currencies, this could severely affect Singapore's trade. This could prompt some action from the MAS like cutting the slope of the Singapore dollar nominal effective exchange rate (S$NEER) as seen before to weaken the SGD.