The Singapore dollar slumped 5 percent against the U.S. dollar in 2014, and strategist expect more of the same ahead, forecasting a decline of up to 5 percent by year-end.
The currency still looks overvalued, says Joey Chew, senior Asian FX strategist at HSBC, citing Singapore's weak underlying economic fundamentals: sluggish domestic demand, disinflation and low productivity growth.
"Its resilience is also unsustainable against the backdrop of escalating global currency tensions. While most major central banks are directly or indirectly weakening their currencies, the MAS (Monetary Authority of Singapore) stands in stark contrast for officially targeting currency appreciation," Chew wrote in a report published on Monday.
As such, Chew expects the MAS will allow the Singapore dollar nominal effective exchange rate (NEER) – which represents the relative value of a currency compared to other major currencies being traded – to drop to the bottom of the band in 2015. This can happen by the MAS easing its U.S. dollar-selling interventions.