SGD Positioning and Carry Trade Implications Ahead of MAS's October 2025 Policy Review

The Monetary Authority of Singapore's (MAS) October 2025 policy review looms as a pivotal event for SGD positioning, with carry trade dynamics and forex tactical positioning hinging on the central bank's response to a fragile global outlook and domestic economic resilience. As the Singapore dollar (SGD) navigates a complex interplay of trade tensions, inflationary moderation, and shifting market sentiment, investors must dissect both macroeconomic fundamentals and technical indicators to gauge the currency's trajectory.

Macroeconomic Fundamentals: A Tale of Resilience and Uncertainty

Singapore's economy has demonstrated remarkable resilience in 2025, with Q3 GDP growth forecasts revised downward to 1.7% due to external headwinds but still outperforming recessionary fears, according to The Straits Times (The Straits Times). The trade balance remains a bright spot, with a surplus of SGD 9.7 billion in June 2025 and projections of SGD 4.5 billion in Q3 2025, per TradingEconomics data (TradingEconomics data). This reflects the nation's export-driven model, though U.S. tariffs on pharmaceuticals-accounting for 11% of non-oil exports-pose a growing risk, MUFG preview notes (MUFG preview).

Inflation, meanwhile, has trended lower, with core CPI at 0.6% year-on-year in the first eight months of 2025, according to the IMF Article IV report (IMF Article IV report). This benign inflationary environment, coupled with global central banks' cautious stance, has allowed MAS to maintain its "Basket, Band, and Crawl" framework, keeping the SGD nominal effective exchange rate (S$NEER) on a modest appreciation path since January 2025, according to OANDA analysis (OANDA analysis). However, the IMF warns that economic slack and low tradable inflation may keep pressures on the SGD's carry trade appeal.

Forex Positioning: SGD's Strength and Technical Crossroads

The SGD has appreciated against the U.S. dollar (USD) in 2025, with USD/SGD trading near 1.29 as of mid-October, per DailyForex analysis (DailyForex analysis). Technical analysis suggests a critical juncture: the 1.2900 level acts as a key resistance, with a break above 1.4540 potentially reversing the bearish trend, according to a CBonds forecast (CBonds forecast). Conversely, support levels at 1.2340 and 1.1990 could signal further depreciation if global risk-on sentiment wanes, per OANDA analysis.

Market sentiment surveys, such as the SGX Q3 survey (SGX Q3 survey), reveal a defensive tilt, with 63% of investors anticipating a stronger USD and SGD/USD depreciation pressures. This aligns with Morgan Stanley's scenarios, which highlight a potential shift to a zero-percent appreciation stance if disinflationary pressures intensify, as reported by The Independent (The Independent). For now, MAS's "wait-and-see" approach-maintaining the S$NEER band's slope, mid-point, and width-has kept the SGD firm but volatile, according to a DBS note (DBS note).

Carry Trade Implications: A Delicate Balance

The SGD's role in carry trades has been under pressure in Q3 2025. With the 3-month SORA projected to fall to 1.37% by year-end, MUFG July note forecasts (MUFG July note), the currency's yield advantage has narrowed. Meanwhile, U.S. interest rates, though expected to decline, remain elevated relative to Singapore's, incentivizing short positions in SGD against USD, per WalletInvestor forecast (WalletInvestor forecast).

However, the carry trade's risk-reward profile is muddled by geopolitical uncertainties. The U.S.-China trade tensions and potential sectoral tariffs could erode Singapore's export-dependent growth, prompting MAS to ease policy in 2026, the Business Times reports (Business Times report). This deferred easing has already priced in a 57.9% probability of adjustments in the next 12 months, according to a Business Times poll (Business Times poll), creating a "wait-and-see" environment for traders.

Tactical Positioning: Navigating the October 2025 Policy Review

For forex investors, the October 2025 policy review offers a strategic inflection point. If MAS maintains its current stance, the SGD could consolidate gains, with USD/SGD testing the 1.2900 resistance. A break above this level may attract long positions, while a pullback to 1.2800 could present entry points for shorts.

Carry trade participants should prioritize risk management. Given the 63% probability of USD strength, according to the SGX Q3 survey, hedging SGD exposure against U.S. rate cuts-anticipated in Q4 2025-could mitigate volatility. Additionally, sectoral diversification (e.g., tech and banking stocks) may offset SGD depreciation risks, according to Investing Iguana (Investing Iguana).

Conclusion

The SGD's positioning ahead of MAS's October 2025 review reflects a delicate balance between domestic resilience and global fragility. While the currency's technical strength and low inflation support a neutral-to-bullish outlook, trade tensions and deferred policy easing introduce asymmetry. Investors must remain agile, leveraging technical levels and macroeconomic signals to navigate this pivotal period.

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