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14 Apr 2015
Singaporean Central Bank delivers somewhat of a surprise Westpac
FXStreet (Bali) - Jonathan Cavenagh, FX Strategist at Westpac, provides his insights into today's MAS monetary policy decision, noting that it delivered somewhat of a surprise.
Key Quotes
"The MAS delivered somewhat of a surprise today by leaving policy unchanged. This has seen USD/SGD fall from above the 1.3700 level to the low 1.3600 region. Today's outcome creates more two-way risks in USD/SGD but we suspect the market bias over coming weeks will remain to accumulate the US$ on dips."
"Overall, we view this statement as quite upbeat on both the growth and inflation outlook. Much depends on better growth conditions in the G3 flowing through into an improved export performance. Higher oil prices are also needed to boost local related manufacturing and inflation pressures. Q1 GDP figures, which were released at the same time as the MAS statement, showed a better than expected growth outcome. However, this was all driven by better than expected construction activity. Construction spending was up 13.8% in the quarter, versus a 2.3% contraction in manufacturing (following a 2.5% fall in Q4) and a 0.4% fall in services activity. Services activity still remains healthy in yoy terms at 3.1% but manufacturing eased further to -3.4%. We could also see some consolidation in construction activity given the risen vacancy rate and declining house price momentum. Such a backdrop may limit the extent to which inflation pressures pick up in the second half of this year."
"In our view such an outlook is likely to see the SGD NEER struggle to push back above the mid-point of the band (see the chart below). Indeed we would use any such move as an opportunity to establish fresh short SGD positions, as the possibility around a policy easing at the October meeting certainly can’t be ruled out. For USD/SGD, we expect dips back towards the 1.3550/1.3600 will be well supported in the short term, although we have to accept that this view is now quite dependent on the broader USD outlook. SGD enjoys the highest correlation with respect to EUR and JPY moves within the EM Asia FX bloc. A move below the 1.3461 level (which is where the 100 day moving average comes in) would be where we would stop out of a long USD/SGD position. We still see scope for a move back into the 1.3800/1.3900 region in Q3 as we get closer to the first US Fed hike."
Key Quotes
"The MAS delivered somewhat of a surprise today by leaving policy unchanged. This has seen USD/SGD fall from above the 1.3700 level to the low 1.3600 region. Today's outcome creates more two-way risks in USD/SGD but we suspect the market bias over coming weeks will remain to accumulate the US$ on dips."
"Overall, we view this statement as quite upbeat on both the growth and inflation outlook. Much depends on better growth conditions in the G3 flowing through into an improved export performance. Higher oil prices are also needed to boost local related manufacturing and inflation pressures. Q1 GDP figures, which were released at the same time as the MAS statement, showed a better than expected growth outcome. However, this was all driven by better than expected construction activity. Construction spending was up 13.8% in the quarter, versus a 2.3% contraction in manufacturing (following a 2.5% fall in Q4) and a 0.4% fall in services activity. Services activity still remains healthy in yoy terms at 3.1% but manufacturing eased further to -3.4%. We could also see some consolidation in construction activity given the risen vacancy rate and declining house price momentum. Such a backdrop may limit the extent to which inflation pressures pick up in the second half of this year."
"In our view such an outlook is likely to see the SGD NEER struggle to push back above the mid-point of the band (see the chart below). Indeed we would use any such move as an opportunity to establish fresh short SGD positions, as the possibility around a policy easing at the October meeting certainly can’t be ruled out. For USD/SGD, we expect dips back towards the 1.3550/1.3600 will be well supported in the short term, although we have to accept that this view is now quite dependent on the broader USD outlook. SGD enjoys the highest correlation with respect to EUR and JPY moves within the EM Asia FX bloc. A move below the 1.3461 level (which is where the 100 day moving average comes in) would be where we would stop out of a long USD/SGD position. We still see scope for a move back into the 1.3800/1.3900 region in Q3 as we get closer to the first US Fed hike."