Sing Dollar is Weakening. Time to Buy Other Currencies to Protect Our Wealth?

Due to the "good news" by Fed, it seems global inflation is in control.

Singapore utilises its exchange rate to limit the pressures of inflation (commonly known as imported inflation). In recent years, due to the bout of strong inflationary pressure, the Sing Dollar has appreciated considerably, with MAS controlling it in an appreciation currency band.

With news that US and other countries have started to face less inflationary pressures, the SGD dollar has started to weaken considerably. At the start of this week, the Malaysian Ringgit has strengthened considerably just 0.5% in a day (that is a significant movement in FOREX), the Japanese Yen too (pherhaps the most popular tourist destination for Singaporeans) has strengthened by 0.8%.

Will It Continue?

Pherhaps yes or pherhaps no, if everyone could predict things perfectly then it will not be called a forecast.

However, in my view, moving forth, there will be a significant downward pressure. Here are my thoughts:

(i) Singapore REITs borrowing in JPY might convert SGD to Yen to pay down loans

A few REITs such as the Mapletree family have been taking on large amount of Japanese Yen loans to finance its global portfolio. With Japanese Yen now appreciating due to the normalisation of interest rates, there could be a chance the Japanese Yen Loan held by the mapletree REIT entities will become more expensive. Mapletree may decide to reduce its japanese yen debt by selling Sing Dollar to buy Yen to repay. That will have considerable pressure on the Sing Dollar.

Mapletree Industrial REIT, one of the largest in Singapore, has 4.9% assets in Japan but assumes a 13.2% of its debt in Japanese Yen; this is to take advantage of the low interest rates in Japanese Yen. However, with the yen starting to appreciate and interest rates starting to hike, MIT Yen loan will become very expensive to the REIT and push its leverge ratio high. It might be inevitable that our Singapore REITs will try to sell off their Sing Dollar currency to pay off Japanese Yen debts.

(ii) Continous Downward Ringgit- SGD Currency Pair on Malaysian Workers

Singapore has a large number of foreign workers of Malaysian nationality. Should the ringgit appreciation start, droves of Malaysian workers will change their Sing dollar savings into Ringgit to take advantage of the trend. Not sure if it will happen but this is possible.

All in all, I do expect to see significant downward pressure on the Sing dollar. Aided by the fact that inflation is now under control, MAS will not be continuing its appreciating currency stance to combat inflation. For those dablling in Sing dollar currency pair, it might be good to be aware of these factors. Personally, I think Sing dollar will start to depreciate to a certain degree with the changing macroeconomy conditions. Maybe for those who love to travel to Japan and Malaysia, it will be good to stockpile your foreign currency to spend to enjoy the still good rates our Sing dollar has.