Q&ACategory: Questionssgd-vs-usd
Joey Ting asked 4 years ago

May I ask how is SGD related to USD?

1 Answers
pcwong Staff answered 4 years ago

The Monetary Authority of Singapore (MAS) sets the bandwith with which the SGD will trade vs the USD.
If the Federal Reserve decides to hike interest rates, the USD will strengthen vs the SGD. This could cause an increase in the cost of imports which will drive up inflation. On the other hand, a weaker SGD will encourage exports. To rein in inflation the MAS may allow the SGD to strengthen vs the USD, but this could impact on Singapore’s exports negatively.
So the MAS walks a tight rope in ensuring its monetary policy does not cause severe inflation while ensuring it does not impact on exports negatively.
If the US economy suffers a recession, the USD will weaken, and SGD will strengthen. This is negative for exports. So the MAS may step in to weaken the SGD relative to the USD.
The above is just a simple example. The MAS still have to consider the SGD vs other basket of currencies within the region so as to ensure Singapore’s competitiveness.
Hope it helps.