The Rise Of The Singapore Dollar

  

(Picture credit: PublicDomainPictures from pixabay.com)

If you had heard from those around you that travelling to some places were getting “cheaper”, they were right. This is mainly due to the strengthening of our Singapore Dollar (SGD) against other major currencies, as shown in Figure 1 over the past 5 years:

SGD to	1-Year %	2-Year %	5-Year %
United States Dollar	+5.34	+3.84	+8.66
Euro	-2.36%	-1.03	+5.15
British Pound	+0.31	-0.03	+1.64
Japanese Yen	-3.95	+10.62	+49.76
Australian Dollar	+8.20	+7.33	+14.91
Chinese Yuan	+3.81	+3.78	+11.27

 

Fig.1: Singapore Dollar to major currency pairs, 1-year, 2-year and 5-year gain/loss. Period covered 13 Jul 2020 to 11 Jul 2025 as at around 11 Jul 2025 2255hr Singapore Time. Source: XE.com. 

While Singaporeans going abroad would literally get more bang for the buck in terms of exchange rates, looking from the other side, if one is having assets in, for instance, Japan, assume the holdings’ prices remain unchanged, the loss would be around 33% over five years.

This is what investors refer to as foreign exchange, or forex, risk. It works both ways in the overall scheme of things; when the country’s currency is strengthened over a period, its imports become cheaper, but its exports would be getting more expensive for the other side, ceteris paribus.

There are many reasons why a certain currency is appreciating and/or depreciating against other currencies. The major ones would be inflation rate, interest rates, macroeconomics (balance of trade, public debts, etc.), geopolitics and demand-supply for the currencies. Factoring in these reasons into the -33% example above, there might be a variety of results, with the possibility of returns going into positive territory.

Forex risk looks daunting, but if the asset returns (capital gains and income) outpace it, the risk should not be a major issue. Though the United States Dollar (USD) may have lost around 8% over five years, the S&P 500 had gained close to 97% in the same period, making forex risk looked like a small blimp. 

Similarly, taking the Euro, which lost around 4.8% against the SGD for half a decade, the representative index STOXX Europe 600 rose by 49%. Surprisingly, Japan, which suffered the 33% forex loss mentioned above, had returned almost 76% based on the Nikkei 225 index. 

Back to the topic of strong SGD, this might be an opportune time to enter markets whose currencies had weakened and accumulate financially sound companies. 

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All figures quoted were from Google Finance and XE.com.