As a benefactor of a few decades of economic reforms, Singapore’s economy continues to thrive as one of the best-growing economies in Asia. In the third quarter of 2024, the country’s economic growth outperformed its predicted rate. This growth is expected to impact foreign exchange activities in its trail. Let’s look at the factors responsible for the growth score and how they affect forex traders. 

What Was Singapore’s Q3 Growth Rate?

A report from the Singaporean Ministry of Trade and Industry highlights a strengthening economy for the South Asian nation. According to advance estimates, Singapore’s economy grew by 4.1 percent year-on-year in the third quarter of 2024, building on the 2.9 percent growth recorded in the previous quarter. On a seasonally adjusted, quarter-on-quarter basis, the economy expanded by 2.1 percent, a marked improvement from the 0.4 percent growth in the second quarter.

What Sectors Influenced Singapore’s Q3 Growth?

Overall, the economic performance is believed to exceed expectations for the first six months of 2024. Some sectors of Singapore’s economy are sponsoring this impressive performance. Let’s take a look at some of the major sectors.

The Manufacturing Sector

In Q3 of 2024, the sector experienced a year-on-year boost of 7.5%. This was a rebound from a contraction of 1.1%, which it had experienced in Q2. The report from MTI attributed the expansion of the manufacturing sector to the performance of several subsectors, with the exception of the biomedical sector. When measured on a quarter-on-quarter basis, the manufacturing sector recorded 9.9% growth. This is a significant figure considering the 1.2% contraction the sector recorded in Q2. 

The Construction Sector

The construction sector’s growth performance dropped to 3.1%, having recorded 4.8% in Q2. The industry’s growth was due to government-connected construction project activities. Based on quarter-on-quarter growth adjustments, the figures stood at 0.0%, contrasting with the 3.4% rate in Q2. 

The Services Sector

The year-on-year growth adjustments for some service-based sectors in the third quarter witnessed a 3.5% growth. These sectors include wholesale and retail, transportation, and storage. The growth was an extension of the 3.9% witnessed in Q2. All service-based sectors achieved growth except the retail sector. 

Impact on Forex Traders

The foreign exchange industry is connected to the economic performance of national economies. The growth of Singapore’s economy in Q3 of 2024 leaves the following impact on forex traders. 

Higher Demand for the Singapore Dollar (SGD)

When an economy becomes stronger, the value of its currency appreciates. With this development, the SGD gains more value, making it an attractive currency for traders, especially in Asian markets. Currently, the SGD is one of the most attractive currencies in Asia, thanks to Singapore’s impressive performance compared to other countries in the region. The rising value of the currency increases investors’ belief in the SGD’s ability to appreciate in the future. When investors’ confidence increases, it results in increased demand for the currency. 

Inflation-Induced Exchange Rates Policies

Unlike other economies, Singapore’s central bank, the Monetary Authority of Singapore (MAS), doesn’t use interest rates. In the United States, for instance, interest rates are adjusted to manage the impact of inflation and unemployment. Singapore’s central bank employs exchange rate policies instead. A strengthening economy may motivate the MAS to alter exchange policies by increasing the value of the SGD, thus affecting the pairs involving the Singapore Dollar. While this presents high-profit opportunities for traders, it can also present some troubles due to the high volatility of pairs involving the SGD. 

Trading Signals 

The presence of foreign investment is one of the factors that forex traders consider during an analysis. The more an economy exhibits economic strength, the higher its portfolio inflow and foreign direct investment. These signals, in addition to inflation data and the unemployment rate, portray the health of an economy, strengthening Singapore forex trading and providing clues on what trading strategies are best suited for the SGD. 

International Currency Relationships

Export activities heavily influence Singapore’s economy. During periods of global market downturns, the SGD may become a “stable asset” option for investors, which may increase demand for the Singapore Dollar. Also, the growth performance of the SGD may have a positive ripple effect on other currencies in the Southeast Asian region. This undoubtedly influences the performance of pairs like the Singapore Dollar to Malaysian Ringgit (SGD/MYR), among others. 

Understanding the USD/SGD relationship

In 2024, Singapore became the first Asian country to enter a free trade agreement with the United States. This would go on to engineer strong trade partnerships and currency relationships. The US imports electronics, machinery, and petroleum products from Singapore. In contrast, the Asian country imports machinery and pharmaceuticals from the US. This relationship creates a high demand for both SGD and USD in the money market. 

Also, the stability of the SGD is somewhat influenced by the USD thanks to the basket, band, and crawl monetary policies. This policy works by pooling a basket of currencies and banding with them. The USD falls among these currencies, which makes it a model of the SGD. A fluctuation in the policies affecting the USD may also affect the SGD due to this basket relationship. Economically, USD/SGD pair changes influence inflation and export activities in Singapore. 

Other than the USD/SGD currency pair, which is the highest-traded pair involving the SGD, some other major and regional currencies have been traded with SGD. They include the Singapore Dollar/Japanese Yen (SGD/JPY), Singapore Dollar/Malaysian Ringgit (SGD/MYR), Euro/Singapore Dollar (EUR/SGD), and Singapore Dollar/Chinese Yuan (SGD/CNY) among others. 

Implications for Currency Demand and Monetary Policy

Singapore’s economy’s 4.1% growth in Q3 of 2024 underscores its overperformance. This will undoubtedly impact the strength of the Singapore dollar and subsequently increase demand for the currency in the money market. Moreover, the country’s economic output may cause the MAS to adjust its exchange rate monetary policy to curb inflation.