Forex trading is a popular activity for many traders, and there are many participants in Singapore, one of the most technologically advanced cities in the world.

If you are a forex trader who is keen to try online currency trading with the Singaporean dollar, this serves as a guide for what you can expect. In this article, we will go through a brief history of SGD and why many forex traders find it an attractive currency for trading. We will also look at some factors that move the Singaporean dollar, and how you can make the most of your trading plans with this knowledge. Without further ado, we’ll get started.

A brief history of the Singaporean dollar

The Singaporean dollar (SGD) has a relatively short history, since its introduction in 1967, when Singapore gained independence from its neighbouring country Malaysia. The currency replaced the Malaysian dollar, which Singaporeans had been using. The SGD then had a 1:1 exchange rate with the Malaysian dollar for practical reasons. In recent years, the exchange rate of the Singaporean dollar and the Malaysia Ringgit is about 1 to 3, with one Singaporean dollar converting to roughly 3.2 Malaysian Ringgit.

However, in the early years of the Singaporean dollar’s existence, the government pegged it to a basket of currencies and the currency experienced high inflation. Due to this, the Monetary Authority of Singapore (MAS), the country’s central bank, shifted to a policy of managed floating in the 1980s. This allowed the SGD to become one of the most stable and widely traded currencies in the region.

Over the years, the MAS has continued to develop and refine the country’s monetary policies. This has greatly contributed to the stability and strength of the SGD. As Singapore is one of Asia and the world’s most technologically advanced countries, the SGD has also found its footing on the international stage, and it carries with it a strong appeal for all investors.

In the next section, we go on to define this strong appeal and break down what it is exactly that makes the Singaporean dollar so commonly traded.

Why trade the Singaporean dollar?

The Singaporean dollar is widely used in international trade and finance, and it is a popular instrument in the forex market. Many traders like to trade the Singaporean dollar with major currencies like the US dollar, the Great Britain pound, the Japanese yen, and the Australian dollar. There is also a great attraction for traders who like to pair the SGD with the Hong Kong dollar, with Hong Kong being a fellow financial powerhouse located just a short flight from Singapore.

Let’s break down what it is exactly that makes the Singaporean dollar so appealing to forex traders.

High liquidity

One of the biggest reasons for trading the SGD is its high liquidity. Traders find it easy to trade in the forex market, and they can enter and exit trades quickly and efficiently because there is so much of the currency in circulation. There are also lots of traders in Singapore who like to trade their home currency, so the market is always active.

Stable economy

Next, what makes the SGD so attractive is Singapore’s stable and flourishing economy. Singapore is one of the world’s most advanced economies with favourable financial and monetary policies for residents and citizens alike. There is generally low inflation, and the country’s strong financial sector creates a stability in the forex market that appeals to traders.

Diversification opportunities

Trading the SGD can also provide for traders various diversification opportunities, as the currency is not strongly correlated to other currencies. This means traders can potentially lower their overall risk of trading by investing in the SGD, depending on the currencies they already have in their portfolio.

Interest rate differentials

Finally, the SGD is subject to interest rate differentials. This means they can offer traders the opportunity to earn additional income through carry trades.

What drives the Singaporean dollar?

To maximise your chances of success in the forex market as a trader of the Singaporean dollar, it is essential that you know what factors drive the currency. Like all other currencies, there is the usual set of factors: the country’s economy, its inflation and interest rates, and its relationship with neighbouring countries.

Interest rates

Singaporean interest rates influence the exchange rate of the SGD. The MAS sets the country’s interest rates, and the higher the interest rate, the more foreign investment there is likely to be. This can increase the overall value of the currency, as there is a greater demand for it in the market.

Inflation

The level of inflation in Singapore can also impact the value of the SGD. High inflation rates can cause the value of the currency to decrease, as the cost of goods and services becomes too high for people to manage. Singapore’s inflation rates have always been stable and comparatively low, sitting at around 6-7% year-on-year, in line with market expectations and estimations.

Economic growth

The country has a fast-growing economy, and it is easily one of the most cosmopolitan financial hubs in the world. The SGD benefits from this stable and flourishing economy, as the country can then attract foreign investments and increase the value of the currency overall.

Trade

As a small island country, Singapore relies on international trade with neighbouring countries such as Malaysia, Australia, the US, and China, as well as various Southeast Asian countries in the vicinity, such as Thailand, Vietnam, the Philippines, and Indonesia, for natural resources. The SGD’s value fluctuates depending on the country’s trade balances and the performance of its major trading partners.

Political and geopolitical factors

Political stability and geopolitical events, such as natural disasters, wars, and civic unrest all can impact the value of the SGD. Thankfully, there are relatively few natural disasters in Singapore. Sitting close to the equator, the hot climate of the country is its defining feature and remains relatively harmless to residents who are used to the heat. The country also steers clear from war and there are few instances of civic unrest in the nation, leading to a stable SGD.

The Singaporean dollar: a summary

Investing in the Singaporean dollar is a great option for newbies and experienced traders alike, for exciting trading opportunities in the forex market. As one of the most advanced economies in the world, the SGD has enjoyed a stable and strong growth in the past decades, and it shows no sign of slowing down. When trading, everyone should be aware that a complex interplay of economic, financial, political, and geopolitical factors influences the exchange rate of the SGD. Therefore, they should keep track of these variables to make informed decisions when trading the currency.

Forex trading: the bottom line

All forms of trading come with risk, and forex trading is no exception. To make the most of your trading opportunities as an investor, you should have knowledge of where your risk appetite lies and have a strong understanding of what you want to achieve with your investments. You should also understand that you can never guarantee profits. The only thing you can do is to minimise your likelihood or impact of risks, which you can do by taking the appropriate risk management measures.