DBS Group Research economist Philip Wee expects the Monetary Authority of Singapore to reverse earlier easing by normalising the SGD Nominal Effective Exchange Rate (NEER) policy band. He expects MAS inflation forecasts to rise due to an energy shock, and notes the Singapore dollar’s trade-weighted level is above the band’s mid-point.
Market volatility is expected to return after the failure of Sunday’s Islamabad Summit between US Vice President J.D. Vance and Iranian Speaker Mohammad Bagher Ghalibaf. The report links this to hopes of de-escalation in the US-Iran conflict fading.
Hormuz Supply Shock Drives Policy Shift
The report says Deputy Prime Minister Gan Kim Yong described the Hormuz chokepoint as the worst since the 1973 oil embargo. It adds that this is treated as a supply shock rather than a normal price move.
It forecasts MAS will reverse two slope reductions made in January and April 2025. It predicts MAS will raise the core inflation forecast to 1.5–2.5% from 1–2%, and lift the CPI-All Items projection.
It states the SGD NEER is about 1.8% above its mid-point. It adds USD/SGD still follows the global US dollar direction.
We believe the Monetary Authority of Singapore (MAS) is about to tighten its policy by strengthening the Singapore dollar. This comes after the breakdown of the Islamabad Summit, which has pushed global energy prices higher. The situation is being viewed as a serious supply shock, meaning the central bank will likely act to shield the economy from imported inflation.
Trade Ideas For A Stronger Singapore Dollar
This move would be a direct reversal of the easing we saw in January and April of last year, 2025. Recent data from March 2026 showed Singapore’s core inflation hitting 2.1% year-on-year, already touching the upper end of the MAS’s old forecast range. With Brent crude trading above $115 a barrel since President Trump’s blockade decision, we expect the MAS to officially raise its inflation forecasts at the next meeting.
We saw a similar playbook back in 2022 when the MAS aggressively tightened policy multiple times to combat inflation from the Ukraine conflict energy shock. The Deputy Prime Minister’s comments framing the Hormuz situation as the worst since 1973 suggest a similarly strong response is coming. Traders should prepare for the SGD NEER policy band to be re-centered or for its slope to be steepened to allow for faster appreciation.
For derivatives traders, this signals an opportunity to position for a stronger Singapore dollar in the coming weeks. The trade-weighted SGD is already trading firmly in the upper half of its policy band, around 1.8% above the midpoint. This shows underlying strength even before any official policy shift.
However, the US dollar is also gaining strength as a safe-haven asset, with the DXY index surging past 108. This means that while the SGD is likely to appreciate, its gains against the USD might be limited. The downward move in the USD/SGD pair could be a grind rather than a sharp drop.
Therefore, traders could consider buying SGD call options against a basket of other currencies, such as the Euro or Yen, which do not have the same safe-haven demand. For those focused on the main pair, selling low-premium, out-of-the-money USD/SGD call options could be a way to express the view that significant upside is capped. This strategy benefits from the expected strength in the SGD while acknowledging the powerful opposing force from the global USD.
