Singapore dollar rallies on trade truce

[SINGAPORE] Singapore’s dollar continued its impressive rally this week, strengthening to levels not seen in over a decade as the United States and China agreed to temporarily slash tariffs, signaling a pause in their protracted trade war. The move has injected a wave of optimism into global markets, with Singapore-a trade-reliant economy-emerging as a key beneficiary of the easing tensions between the world’s two largest economies.

US-China Tariff Truce Sparks Investor Relief

On Monday, the US and China announced a 90-day suspension of their steepest tariffs, with the US reducing levies on Chinese imports from 145% to 30% and China lowering its tariffs on American goods from 125% to 10%. The agreement, reached after two days of negotiations in Geneva, is widely seen as a critical step to defuse trade hostilities that had threatened to stall global growth and disrupt supply chains.

President Donald Trump, speaking at the White House, emphasized the importance of “opening up” the Chinese market to American businesses, while Chinese officials highlighted the need for a “stable, long, and beneficial economic and trade relationship”. While the truce is temporary, analysts say it offers much-needed clarity for businesses and investors, at least in the short term.

Singapore Dollar Nears Decade High

The Singapore dollar (SGD) has surged nearly 6% against the US dollar this year, outperforming all other Southeast Asian currencies and approaching parity with the greenback-a milestone not seen since the mid-1980s. As of Thursday, the SGD was trading around 1.2985 per US dollar, with analysts projecting it could hover between 1.26 and 1.29 through the end of 2025.

Several factors are driving the currency’s strength:

Global Risk Appetite: Investors seeking alternatives to the US dollar have turned to the SGD, which is viewed as a resilient and stable currency amid global uncertainty.

Trade Optimism: Hopes for a sustained US-China dialogue and reduced tariffs have reinforced the “de-escalation thematic,” lifting Asian currencies broadly.

Singapore’s Economic Fundamentals: While growth forecasts have been trimmed, Singapore’s robust external position and prudent monetary policy continue to support the currency.

Economic Impact: Recession Risks Ease, But Uncertainty Lingers

Singapore’s heavy reliance on global trade-exports account for over 40% of its GDP-means that any thaw in US-China tensions has an outsized impact on its economic outlook. Analysts believe the tariff truce could help Singapore avoid a recession this year, with GDP growth expected to remain in the 0% to 2% range.

“It’s good news for Singapore’s economy to the extent that disruptions will be fewer than they otherwise would have been,” said one analyst, noting the positive reaction in Singapore’s benchmark Straits Times Index.

However, the relief may be short-lived. The 90-day window leaves significant uncertainty about what happens next, with economists warning that a return to higher tariffs or further policy flip-flops could deter investment and trade. The Monetary Authority of Singapore (MAS) is also closely monitoring the situation, ready to intervene if the currency’s strength threatens to disrupt market balance.

Policy Outlook: MAS and the Path Ahead

The MAS manages the SGD through a policy band, allowing the currency to fluctuate within a set range rather than targeting interest rates. Currently, the SGD’s nominal effective exchange rate (S$NEER) is about 1.1% above the midpoint of this band, prompting speculation that MAS may act to moderate further appreciation if economic data deteriorates.

Recent moves by MAS to lower its core inflation target and trim GDP growth forecasts suggest a cautious stance, with policymakers prepared to ease policy if headwinds intensify.

Regional and Global Implications

The Singapore dollar’s ascent mirrors a broader trend among Asian currencies, many of which have gained ground as the US dollar weakens on concerns about the domestic impact of the trade war. The Taiwan dollar and Japanese yen have also seen notable strength, reflecting a shift in investor sentiment away from the US and toward perceived safe havens in Asia.

For Singapore, the challenge will be to sustain growth and currency stability amid ongoing global uncertainty. The outcome of the US-China negotiations over the next three months will be pivotal, with market participants watching closely for signs of a lasting resolution or renewed friction.

The Singapore dollar’s rise underscores both the city-state’s resilience and its vulnerability to global trade dynamics. While the recent US-China tariff truce has provided a welcome boost, the path ahead remains fraught with uncertainty. Policymakers and investors alike will be watching for further developments, as Singapore navigates the delicate balance between currency strength, export competitiveness, and economic growth.