Why does the Singapore dollar only go up?
It seems like every other day, the Singapore dollar is making a new all-time high.
Since the start of the year, the SGDMYR pair has rallied by 2.45% to RM3.5745.
In the recent two years, the Sing dollar improved 15.46%, representing an annual return of 7.45%.
This return is higher than EPF and 87% of unit trusts in Malaysia.
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Part of SGD’s strength could be attributed to the ringgit’s weakness.
As covered in my previous newsletter, MYR has continued to face outflows due to the difference in interest rates between Malaysia and global central banks such as the US, UK, and Europe.
However, the Sing dollar itself has also strengthened versus other currencies.
Since 2021, SGD has improved against the British pound, Japanese yen, and Euro — all except the greenback.
Singapore’s monetary policy is very different.
People often think that the Monetary Authority Singapore (MAS), controls the local borrowing rates, but this a widespread misunderstanding.
Singapore does not control interest rates within the country.
The tiny nation directly intervenes in the exchange rate of its currency to control inflation.
This intervention is based on the S$NEER index, which contains a basket of currencies from Singapore’s major trading partners and competitors (ie. USD, MYR, JPY, etc.).
I like to think of S$NEER as an index of the Sing dollar’s strength.
Judging by its historic performance against the US dollar, we can fairly say that the S$NEER index is mostly made up of USD.
Why is Singapore able to do this?
Singapore is a small country. It has no natural resources and relies heavily on foreign trade.
- Exports and imports make up 300% of its GDP.
- For every dollar spent locally, 40 cents go to imports.
Singapore also has a deep pocket of FOREX reserves, allowing it to use part of the funds to influence its exchange rate.
To give you some context, Malaysia is currently ranked 26th in the world for its FOREX reserves, while Singapore is ranked 11th.
Singapore allows S$NEER to freely fluctuate within an undisclosed band.
When S$NEER falls beneath the lower band (SGD weakening), MAS buys up Sing dollars to strengthen the currency.
Conversely, if S$NEER rallies above the upper band, MAS sells Sing dollars to weaken the currency.
To lower inflation, MAS can adjust the slope of the band upwards, effectively allowing SGD to strengthen.
A stronger currency makes imports cheaper.
Since Singapore heavily relies on imports, inflation cools with a stronger Sing dollar.
During the height of the pandemic in 2021–2022, inflation in Singapore peaked at 7.6%.
As a result, MAS tightened the monetary policy five times by raising the slope or center of the S$NEER index.
The effects were clearly reflected in the Singapore dollar.
As soon as MAS began tightening, the SGDMYR pair rallied and has never stopped since.
So it’s not just people who have been contributing to Sing dollar’s strength, but MAS as well.
What Now?
MAS is expected to keep the monetary policy tight by holding the slope of the band at where it is currently.
This is due to recent inflation data missing expectations.
So buckle up, things are not looking very bright for the Malaysian ringgit.
How do I diversify into SGD assets?
If you have a Singapore bank account, you can convert your ringgit to SGD using TNG GORemit or Wise and send it over.
I’ve done a comparison of both options a few weeks ago:
i) For amounts > RM1,000 (TNG GORemit Wins)
This is because the platform charges a flat fee of RM10 for overseas transfers.
Even though there is a slight deviation from BNM’s exchange rate (~0.664%), the fees are lesser compared to Wise (0.72%).
ii) For amounts < RM1,000 (Wise wins)
This is because of GORemit’s flat fee of RM10. So the less you send, the “more” the fees.
In the case of Wise, the conversion fee (0.72%) is fixed for any amount, and the transfer fee of SG$0.71 is flat.
Banks in Singapore often allow you to invest your balance in SG assets or fixed deposits, so you can grow your money further.
If you don’t have an SG bank account, you can:
i) Invest in SGD denominated assets with Versa SGD.
The fund is managed by AHAM Capital and is packed with reputable assets from financial institutions, banks, and real estate giants.
- 10-Year Annualized Return: +6.07%
- Exposure: SGD-denominated assets, moderate risk.
- Top Holdings: DBS Group, OCBC, and UOB.
- Not Shariah compliant.
- Fees: 1.58% annual management and trustee fee.
ii) Apply for a foreign currency account with CIMB.
This is only recommended if you have a longer time horizon, because the rates provided by banks are often unfavorable.
CIMB also allows you to place the SGD balance in fixed deposits, up to 3.50% pa for 12 months.
iii) Invest in SGD through Wise.
The app allows you to send, spend, and save in over 50 different global currencies.
The rates provided are also much more competitive, but it does not allow you to invest your savings, meaning that the foreign currency will be left dormant in your account.
You can save up to 100% on a Tradingview subscription with my refer-a-friend link. When you get there, click on the Tradingview icon on the top-left of the page to get to the free plan if that’s what you want.
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