As of 2016, the Singapore Dollar (SGD) is the twelfth most traded currency in the world by value, and remains a popular choice of currency for Australians for both investment purposes and those looking to travel in South East Asia, given Singapore’s location as a travel hub in the region.
We have created a short guide to help you understand some of the factors that affect the movement of the Singapore dollar (and SGD-AUD exchange rate), what gives the SGD its value, and what can cause changes to its value.
What gives the Singapore Dollar its value?
The SGD is popular for investors because Singapore maintains a relatively stable government in a region known for turmoil. Singapore is also a major trading and shipping hub, as well as holding a major stock exchange with over 750 companies with assets worth 900 billion SGD.
What can affect the value of the Singapore Dollar?
Monetary policy is generally described as the way the central bank of a country controls the supply of money to businesses and people, in order to manage economic factors such as growth and inflation.
Countries usually use interest rates to control monetary policy – as interest rates affect people’s behaviours around borrowing and saving. Generally speaking, the lower the interest rate, the more likely it is people will borrow to spend money as the cost of credit is cheaper.
Singapore remains unique in the global economy as the only country in the world to employ a monetary policy system based on exchange rates rather than interest rates. This means that Singapore’s central bank – the Money Authority of Singapore – allows the SGD to rise and fall, intervening when required in order to maintain the exchange rate within a particular target band (which it does not disclose to the public).
Singapore’s economy remains relatively stable, which is a marked difference to other economies in the South East Asian region. Singapore has developed a reputation for having the best environment to set up and conduct a business (from a regulatory standpoint) in the world. In addition, Singapore is ranked among the world’s most competitive economies.
What does this mean for the exchange rate?
The combination of a strong, stable economy and the unique exchange rate based monetary policy means that the SGD-AUD exchange rate is projected to remain relatively stable in the short to medium term. As of February 2018, WorldFirst was quoting the SGD-AUD exchange rate at $1.036 SGD/AUD. The graph below from OFX shows the historical rate over the past 5 years:
As the graph demonstrates, the exchange rate has not seen a large degree of fluctuation in the recent short term as other, more volatile currencies. For example, the spread over the last two years has been between $1.00 SGD and $1.08 SGD.
Analysing the movement of the exchange rate over the last 10 years, there was a substantial dip in the exchange rate in 2008/2009 following the global financial crisis and then the rate recovered to a high of $1.35 SGD in 2012 and has seen a period of decline since then before flattening out in recent years. This is likely due to the strong economic growth experienced by Singapore in recent years and the downturn in the mining industry in Australia which has seen the Australian Dollar weakening somewhat.
It is important to remember that investing in forex is still a volatile investment as exchange rates are dependent not only on the country whose currency you are investing in, but also domestic conditions at home in Australia. We have prepared a helpful guide outlining some of the factors affecting movements in the Australian Dollar.
Singapore residents can save money now on their international money transfers using WorldFirst. Open a free account now.
Other Useful Facts About the Singapore Dollar
Currency Name: Singapore Dollar
Currency Code: SGD
Currency Symbol: S$
Central Bank: Monetary Authority of Singapore
Countries Used In: Singapore, Brunei
Major Unit: One Dollar
Minor Unit: One Cent
Note Denominations: $2, $5, $10, $20, $25, $50, $100, $1,000, $10,000
Coin Denominations: 1, 5, 10, 20, 50 cents; $1, $5