Credit: macrotrends.net

The USD has survived different regimes. There are times when USD showed strength. There are times when USD showed weakness. 

In the long-term, USD value seems to trade in a sideway move.

Could it be due to interest rate differentials? Or economic growth? Or other economic theories? Perhaps. I'm not exactly sure.

But what I'm certain of is the USD has held its value fairly well.

And it reflects the strength of the US economy to the world.

I've to be clear on one thing: a weak US dollar doesn't mean it will be removed as a global reserve currency.

~60% of the global foreign exchange reserves are still held in the US dollars. Most of the global commodities like oil and gold are still priced in the US dollar.

As much as there's doomsday predictions of a de-dollarization, I'm betting this probably won’t happen anytime in the near future. Why?

There's simply no real alternative to the USD yet. 

No USD crash - But will USD ever hit parity with SGD?

We could see currency volatility in the short-term due to ongoing tariff wars. But my take of USD-SGD parity? It also likely won't happen.

I'm convinced for two reasons.

First: investors still choose to rush into US treasuries during the crisis. Ironically, this is despite the US being one of the most heavily indebted countries. The world still puts trust and US debt is still considered the safest asset on the planet. 

Second, Singapore's MAS uses the exchange rate system to manage inflation and growth.

Simply put: It doesn't use interest rates to control SGD. And MAS doesn't want a super strong Singapore dollar either. It just doesn’t make sense.

A SGD might make imports cheaper, but it's going to hurt exports and tourism in the long run. Singapore is an open economy — It still relies heavily on trade. And a strong SGD will deter other countries from trading with us. 

That's why MAS manages the SGD within a currency band.

If USD ever hits parity with SGD, it means this currency band is breached.

And MAS would have likely intervened before letting that happen. 

How much will the USD weaken vs SGD?

So far, there's concerns of tariffs impacting the US economy. It’s natural for foreign investors to sell off US assets today to rotate capital elsewhere. This could further drive down USD.

Analysts are expecting USD to decline about 15% against the Euro, and 9% against the Japanese yen over the next 12 months.

Whether this happens is anybody's guess. I don't deny this tariff is going to weaken USD. 

Look, I've no idea where USD will eventually trade. But what I know is USD has gone through many cycles over the last 50 years. It's traded sideways against global currencies.

Like stocks, there are times when USD outperforms other currencies in one period. And there are times when USD will underperform in the next. 

USD falling — Would I be worried today?

Now, would I be concerned with USD? Yes. As a Singaporean dividend investor, a weak USD means returns from my US assets are worth less. I invest for dividends. And US stocks form a chunk of my portfolio. And it's something I think about as a Singaporean investor.

Worried? Not really.

Because at the same time, these US assets are also cheaper to acquire because of the stronger SGD. 

My final thoughts

As a dividend investor, I prefer to diversify my portfolio globally. I accept currency volatility is going to be part of my portfolio in the short-term.

But I'm not going to ignore US stocks just because of short-term volatility.

When USD drops, it benefits international stocks because capital will flow to other markets like Asia - China, Hong Kong and Singapore will benefit.

That's why, over the past couple of years, international stocks have underperformed the US stocks because of a strong US dollar.

And it only makes sense because a strong dollar attracts capital flows across the world.

What matters more to me is whether the companies I invest in continue to show strong earnings power that could more than compensate for foreign currency risks and whether these companies continue to pay growing dividends.

As a dividend investor, my focus is on high-quality assets, regardless of currency noises. 

Sometimes, investing can be simple. 

Willie Keng, CFA

Founder, Dividend Titan