The Singapore dollar has proven notably resilient in the wake of the Iran conflict, falling only 1.6% against the US dollar since the episode began, compared with an average 2.3% decline across Asia-Pacific currencies, according to UBS.
UBS strategists Teck Leng Tan and Dominic Schnider attribute the currency's outperformance to two core factors: Singapore's strong fiscal position and the MAS's distinctive policy stance that places the exchange rate at the center of inflation control. Those conclusions were set out in a research note published Monday.
Regional currencies broadly weakened after the conflict began on February 28, a move UBS links to higher oil prices that weigh on net-energy importing economies in Asia. The strategists singled out Australia, Indonesia, and Malaysia as exceptions to that general rule, noting that most other Asian economies are hurt by the rise in energy costs. At the same time, a shift to risk-off sentiment has prompted global investors to pare back exposure to Asian financial markets, amplifying pressure on local currencies.
Singapore's fiscal position gives policymakers flexibility to blunt the impact of higher energy prices. Budget 2026 projects a fiscal surplus of SGD 15.1 billion, equal to 1.9% of GDP, for the fiscal year ending March 31, 2026. UBS points to that cushion as a source of optionality for Singaporean authorities, similar to 2022 when the government rolled out a SGD 1.5 billion support package amid the Russia-Ukraine war.
The MAS's policy framework differs from many peers because it leans on the exchange rate as a primary instrument to counter inflation. The strategists discussed the ongoing debate over whether monetary tightening is appropriate when oil price inflation is driven by supply shocks rather than demand, and noted that the MAS is likely to welcome a stronger and steadier Singapore dollar to temper imported energy costs. UBS caveats that this preference holds except in a scenario where sustained high oil prices severely undercut global growth.
UBS maintained its USDSGD path, keeping targets at 1.25 for June, 1.25 for September, and 1.24 for December, and adding a 1.24 target for March 2027. The research note places the current USDSGD level in a 1.27 to 1.28 range.
Looking ahead, the strategists expect the MAS to effect tighter policy not by raising domestic interest rates sharply but by allowing a faster pace of SGD appreciation later this year. That stance contrasts with expectations for the Federal Reserve, where UBS anticipates further easing amid a softening labor market and controlled inflation.
Domestic interest rates in Singapore are expected to remain subdued in this environment. UBS projects the three-month Singapore Overnight Rate Average to hover between 1.0% and 1.2% this year, a reading that represents a three-and-a-half year low. Given that the MAS places primary emphasis on the exchange rate, local interest rates are likely to play a secondary role. Against a backdrop of capital inflows favoring a stable-to-stronger SGD, domestic rates should stay muted.
Key context available in the UBS analysis underscores Singapore's policy toolkit: fiscal space to deliver targeted support when needed, plus a central bank that prioritizes exchange-rate management as an anti-inflation mechanism. Those elements combine to explain why the Singapore dollar has been one of the most resilient currencies in Asia since the conflict began.