Singapore’s large pool of fiscal reserves is proving to be a boon for the nation’s currency.

The city state’s dollar advanced to its highest level in six months last week -- erasing its pandemic-driven losses -- after the government unveiled another stimulus package, financed in part by unused expenditure from earlier budgets.

See: Singapore doles out another $8 billion in fight against Covid-19: DPM Heng

With the total for pledged pandemic aid now over $100 billion, there could be more gains to come as the spending eases pressure on the Monetary Authority of Singapore to lower the currency band it uses to manage inflation.

“The ability to dig deep into fiscal reserves from years of surplus is unequivocally an advantage,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. He sees the local dollar strengthening beyond 1.36 versus the greenback, from $1.3718 at 7:30 a.m. local time on Monday.

Analysts at Malayan Banking Bhd. forecast the currency to head toward 1.35 while options contracts signal an almost even chance that the Singapore dollar will finish the year stronger than this level.

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Singapore’s fiscal buffer is in marked contrast to the situation in many other developed economies, which have relied on increased debt and rate cuts by central banks to fund stimulus.

The MAS, which has two scheduled policy decisions a year, took unprecedented action in March of lowering the midpoint of the currency band and reducing its slope to zero. Deputy Managing Director Edward Robinson said this month that the monetary response remained appropriate.

With the central bank’s next scheduled policy decision is not due until October, the immediate focus of the market will be the next round of economic data from Singapore and the broad direction of the greenback.

Mizuho’s Varathan said his current forecast for Singapore’s currency may be conservative, given the “bearish USD impulse” in markets.

Figures due Monday are projected to show core consumer prices fell 0.4% in July from a year ago, versus a drop of 0.2% a month earlier.

Industrial production numbers on Wednesday may paint a more upbeat picture, with output estimated to rebound 4.0% in July from June, while still down 6.4% from a year earlier.

Below are the key Asian economic data and events due this week:

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