The Australian dollar has been among the hardest hit of major currencies in recent months. Heavy losses since January have been widely reported in the financial press, with most commentaries focusing on the Aussie’s 8.6 percent decline against the US dollar to levels around 0.745; but the Australian dollar has, of course, suffered elsewhere, and a symbolic marker of its current distress arrived this week when the currency fell below parity with the Singapore dollar for the first time in nearly two years.
AUD/SGD’s fall on Wednesday to just 0.998 (as of 4pm in Sydney) reflects differences in the monetary policy outlooks of the respective central banks.
Whereas the Reserve Bank of Australia continues to see little reason for a near-term increase in interest rates, the Monetary Authority of Singapore is set to tighten monetary policy for the first time since 2012 in response to robust economic growth – 4.3 percent in the fourth quarter – which it will achieve by allowing the Singapore dollar to appreciate; it announced as much in April. The unconventional method of managing policy by managing exchange rates (in simple terms) has been employed with great success in Singapore since 1981.
Although no forecasts for AUD/SGD were available at the time of writing, the Australian dollar will, according to Goldman Sachs, continue to weaken in the broader markets. Speaking to Bloomberg nine days ago, Philip Moffitt, the head of Asia-Pacific fixed income at the illustrious bank, said that it was “hard to be bullish on the Aussie” and went on to predict a decline in AUD/USD to 0.72 by year-end (last seen at 0.7435).