The Singapore dollar has become the strongest Asian currency this year.

According to media reports, some strategists are betting that the Singapore dollar will strengthen further if price pressures force the Monetary Authority of Singapore (Bank of Singapore) to tighten exchange rate policy again next month.

Goldman Sachs Group, Citigroup and Mitsubishi UFJ have expressed their optimism on the Singapore dollar.After Singapore's core inflation hit a 14-year high in July, the Monetary Authority of Singapore is expected to extend tightening at its October meeting to help curb core inflation.

Almost all major currencies are falling against the dollar as a result of the Fed's violent rate hikes. Although the Singapore Monetary Authority's position has made the Singapore dollar a winner against other Asian currencies, the Singapore dollar has fallen more than 4 per cent against the US dollar so far this year.

The Singapore dollar is expected to continue to strengthen

According to the media, Jeff Ng, foreign exchange strategist at MUFG Bank in Singapore, said that the Monetary Authority of Singapore has a 50% chance of further tightening monetary policy next month.That could mean that the Singapore dollar will appreciate by more than 1 per cent against the dollar in the coming months.

He said:

"our forecast for the Singapore dollar rebound is based on the fact that most of the possibility that the Fed will eventually raise interest rates has been digested by the market."

UFJ Bank of Mitsubishi expects the Singapore dollar to rise to S $1.38 against the US dollar.

Unlike most central banks that adopt interest rate policies, the Monetary Authority of Singapore responds to rising core inflation by guiding its currency to appreciate against a basket of major trading partners. The central bank focuses on the level of the nominal effective exchange rate of the Singapore dollar, or NEER, which allows it to fluctuate within a policy range.

What are the risks to the Singapore dollar?

However, even if the Monetary Authority of Singapore tightens policy for the fourth time this year, there is no guarantee that the Singapore dollar will rebound against the dollar. Divya Devesh, head of ASEAN and South Asia Foreign Exchange Research Department of Standard Chartered Bank Singapore Branch, told the media:

Despite the tightening of policy by the Monetary Authority of Singapore, under the tough position of the Federal Reserve and geopolitical tensionsThe US dollar is likely to continue to rise slightly against the Singapore dollar.”

However, according to media reports, the Singapore dollar bulls are now facing two major risks:

1. The Monetary Authority of Singapore will keep its policy unchanged next month.This possibility cannot be completely ruled out at present. The central bank of Singapore maintained inflation expectations for 2022 in August, suggesting that existing policy positions may be sufficient to curb inflation.

two。 The core CPI is not as expected.Singapore will unveil core CPI for August on Friday, and the market expects core CPI to rise 5 per cent in August from a year earlier. If the data falls short of expectations and expectations of further tightening by the Monetary Authority of Singapore weaken, the Singapore dollar may come under pressure.

The Divya Devesh expects the Singapore dollar to fall to S $1.42 against the US dollar without further tightening by the Monetary Authority of Singapore.