Is Singapore a canary in the coal mine?

Currencies often speak to a simplicity of truth that equities don’t. They tend to have a multitude of driving domestic influences, a regional context and global relative value. Currencies are free of quarterly earnings, analyst coverage or estimates and not bound to universal accounting principles in all cases. It could be argued that behind much of the brutal economic competition in the world at the moment lies a currency battle. For example, look at how central the US dollar’s strength is in the narrative driving crude pricing, monetary policy, manufacturing and exports.

When we think of deflation, tepid demand and weak economic expansion we think of the euro zone. We think of China’s deceleration and of course we think of the Fed’s current battle to reignite healthy inflation in the United States. Deflation however has emerged as a global challenge – one that does not recognize boundaries. One country that seems to be speaking to these themes with singular focus is Singapore.

Singapore is the top rated economy in Asia by most measures, and is often considered something of a proxy for the pan-Asian economy. At the end of this quarter Singapore will likely have registered its third consecutive loss in value versus the U.S. dollar. Given the importance of Singapore as the premier economy in Asia, that weakness relative to the US dollar is a concern. Last week the Singapore dollar closed at a four year low versus the US dollar. It has been underperforming its peers in the region.

Interest rate cuts in Thailand impacted the Singapore dollar last week driving it lower. China’s declining rate of growth and questions concerning its approach to reigniting demand are also having its impact on the Singapore dollar. Increasingly the Singapore economy is having its own issues with growth given that its primary export is oil. Singapore’s significance to the pan-Asian economy is often overlooked here but shouldn’t be. History has taught us that a currency crises can be contagious and disruptive to economies far and wide.


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