If you’ve been keeping an eye on the currency markets, you might have noticed a steady trend: the Australian dollar (AUD) has been gradually slipping against the Singapore dollar (SGD) over the past few years.
At first glance, this might seem like a niche issue for traders and economists. But currency trends like these can have wider implications for regular investors, expats, travelers, and anyone building a life that crosses borders. Whether you’re investing in overseas assets, planning a family holiday to Melbourne, or simply thinking ahead for retirement, it’s worth understanding why the AUD is weakening — and what that might mean for you.
Let’s see how AUD’s decline and how it ties back to broader economic forces.
Additionally, how this trend could impact Singapore-based investors — especially those holding assets with Australian exposure, like Frasers Logistics & Commercial Trust (SGX: BUOU).
A Tale of Two Economies
Currency exchange rates essentially reflect the strength — or perceived strength — of one economy versus another. In this case, Australia and Singapore offer a contrast in economic structure, policy, and investor sentiment.
While Australia is a resource-rich country heavily reliant on exports (especially to China), Singapore operates as a global financial hub with a strong services economy and careful currency management. These differences are key to understanding why the SGD has been appreciating while the AUD continues to face headwinds.
1. Interest Rate Policies: A Yield Gap Appears
Interest rates have a big influence on currency values. When rates rise, a country’s assets become more attractive to investors seeking better returns. The Reserve Bank of Australia (RBA) has raised interest rates in response to inflation, but it’s done so more cautiously than other major economies.
In contrast, Singapore’s central bank — the Monetary Authority of Singapore (MAS) — uses the exchange rate as its main policy tool rather than interest rates. MAS has allowed the SGD to strengthen steadily in order to manage imported inflation.
As a result, the yield and stability offered by SGD-denominated assets look more attractive than those in AUD. This “interest rate differential” has led to lower demand for the Australian dollar.
2. Australia’s Trade Ties with China
Australia’s economy is deeply tied to China, particularly through exports like iron ore, coal, and liquefied natural gas. When China’s economy is growing rapidly, demand for these materials surges — and so does the value of the AUD.
However, in recent years, China’s growth has been slowing. Its property sector has faced a prolonged downturn, and industrial demand has weakened. This has led to reduced demand for Australian commodities — and with it, lower inflows of AUD.
As demand for Australian exports falls, so too does the demand for the currency itself.
3. Commodity Price Volatility
Australia’s status as a major commodity exporter means its currency tends to move in line with global commodity prices. The AUD is often viewed as a “commodity currency,” influenced by price shifts in energy, metals, and agricultural exports.
Lately, commodity prices have been under pressure due to weaker global demand and increased supply. As prices of key exports like iron ore and coal stabilize or decline, Australia’s trade income drops — which weighs on the AUD.
4. Singapore’s Strong Currency Management
Unlike most central banks, the MAS doesn’t directly set interest rates. Instead, it uses the SGD exchange rate as its primary tool to maintain price stability.
This approach has kept the SGD strong and relatively predictable — qualities that are highly valued in today’s uncertain global economy. By letting the SGD gradually appreciate, MAS has helped Singapore avoid runaway inflation while strengthening investor confidence in the currency.
This strength also makes the SGD more attractive relative to regional currencies, including the AUD.
5. Domestic Pressures in Australia
Beyond external factors, Australia has internal challenges that are weighing on its economic outlook.
- High household debt: Australian consumers are among the most indebted in the developed world.
- Rising mortgage costs: As interest rates tick higher, mortgage repayments are consuming more of household income.
- Subdued wage growth: Despite inflation, wages have not risen quickly enough to maintain purchasing power.
- Cooling housing market: Property values, a major driver of Australian wealth, have begun to soften in some cities.
All of these factors contribute to weaker consumer spending, reduced business confidence, and ultimately, a more fragile economy — which investors respond to by reducing exposure to the AUD.
6. Risk Appetite and Safe-Haven Behavior
Finally, it’s important to understand how investor sentiment drives currency flows.
The AUD is often considered a “risk-on” currency — one that performs well when global markets are optimistic and risk appetite is high. The SGD, on the other hand, is viewed as a relatively stable “risk-off” currency, especially in the Asia-Pacific region.
In times of uncertainty — whether it’s due to inflation, interest rate volatility, or geopolitical tension — investors tend to shift their capital into safer currencies. That favors the SGD over the AUD.
What This Means for You
If You Travel to Australia
This trend may benefit you. A stronger SGD means your money goes further when paying for food, lodging, or activities in AUD. Travel becomes slightly more affordable — at least in currency terms.
If You Invest in Australian Assets
Currency depreciation can reduce the value of your overseas investments when translated back into SGD. Even if your investment performs well in AUD terms, exchange losses could drag down your actual returns.
If You’re Planning for Education or Migration
Tuition fees, accommodation, and daily expenses may cost less in SGD terms — but be mindful that local inflation in Australia could offset these savings over time.
If You’re Building Financial Independence
Every cent counts when you’re pursuing FI. Currency risk affects passive income streams, overseas property investments, and diversified portfolios. Understanding these risks helps you protect your capital and grow it wisely.
A Closer Look: Frasers Logistics & Commercial Trust (SGX: BUOU)
If you’re investing in Singapore-listed REITs, one example where the AUD/SGD exchange rate has direct relevance is Frasers Logistics & Commercial Trust (FLCT).
FLCT owns a portfolio of logistics and commercial properties across Australia, Germany, and the Netherlands — with Australia making up a significant portion of its assets and rental income.
Here’s why that matters:
- Rental income in AUD: A weaker AUD can reduce the trust’s reported distributions in SGD unless hedging is fully effective.
- NAV and asset valuation: If AUD continues to depreciate, the SGD value of Australian assets may decline, affecting FLCT’s book value and possibly its share price.
- DPU (Distribution Per Unit): Currency fluctuations can create volatility in payouts, which is a key consideration for income-focused investors.
While FLCT does employ currency hedging strategies, no hedge is perfect — and long-term currency trends still matter. If you’re holding or considering FLCT, it’s worth reviewing the trust’s latest updates on how it’s managing AUD exposure.
Stay Curious
The AUD’s steady decline against the SGD reflects deeper shifts in global trade, interest rate dynamics, and investor sentiment. It’s a reminder that even if we’re living in Singapore and earning in SGD, our financial decisions — whether it’s buying a REIT, investing abroad, or planning a holiday — don’t exist in a vacuum.
Being mindful of currency exposure is part of being intentional with your money. You don’t need to be a forex expert to make smart decisions — just aware, informed, and adaptable.
Stay curious, stay intentional — and most of all, care your present.