There are many economic factors to consider when assessing the strength of a currency. Some economic factors may have a greater impact at different times and for different countries. A strong currency will make a country exports more expensive for foreign buyers, while imports may be downright cheap for local consumers.
The strength of a currency is determined by the interaction of a variety of local and international factors such as supply and demand in the foreign exchange markets; central bank interest rates; inflation and domestic economic growth; and the country’s trade balance(current account balance).
The reasons for the Singapore currency’s resilience against a backdrop of high inflation and economic uncertainty include Singapore’s triple-A sovereign debt rating, a sizeable current account surplus and a rich stash of foreign exchange reserves. Last year, The Singapore dollar benefited from monetary tightening by the Monetary Authority of Singapore (MAS), which centered the midpoint of its exchange rate band three times higher in 2022 to fight inflation. Further tightening cannot be ruled out as core inflation stayed above 5% in November 2022 despite tightening monetary policy. Mr Wong stated that “the Singapore dollar should remain resilient on the back of macro fundamentals and China reopening optimism. The case for further MAS tightening is still plausible if inflationary pressures in Singapore continue. But it could be a case of slope steepening to anchor medium-term inflationary expectations.”
Other contenders for the 2023 strongest currency in South-East Asia is the Thai Baht(THB). Data show Thailand’s CPI is starting to rise again. The Bank of Thailand has already said it will hike interest rates further in the first half of 2023 and any upside surprise in the data could lead markets to price in an extended tightening cycle. Domestic growth will be supported by a sustained tourism recovery. The baht is expected to be fueled by an influx of Chinese tourists after China lifted most of its Covid-19 controls last month, paving the way for a rebound in international travel. The mainland is also Thailand’s largest export market.