Asian FX – watching USD/SGD on MAS

Asian currencies that had risen in tandem with equities certainly appeared to be finding its momentum slow into this year and in fact, the results had been rather mixed at the end of Q1. 

MAS Building
Source: Bloomberg

That being said, amongst the lot, the Singapore dollar would be one to watch for more upsides in the lead up to the upcoming Monetary Authority of Singapore (MAS) meeting.

USD bid?

USD/Asians had largely moved in accordance to the greenback’s fluctuations whereby 2017 marked a year of gains for most Asian currencies, led by the Korean won. Lately, however, the US dollar appears to have found support with a certain degree of Fed’s help. Better than expected inflation figures that arrived in the early part of the year alongside the resilient growth story had brought about a reaction in bond yields. The significant lift in yields had fed into US dollar bids, keeping the US dollar index oscillating the 90.00 figure through February and March.

Complicating the outlook moderately had been the concern over trade tariffs. With US and China hurling threats and implementing various import tariffs, the US dollar had turned into a barometer of risk sentiment. Short-term risks certainly tilts towards the downside on concern over an escalation into a trade war. Although, a realisation of which could drive the US dollar otherwise, not forgetting the USD’s ‘haven’ status and that the riskier EM Asian currencies would likely be given up in exchange for. Note that amongst Asian currencies, the JPY would obviously be in the league of haven assets to watch here. 

For the nearer-term, we have certainly seen the US dollar index recovered last week as jitters over trade simmered, holding rather steady around 90.00 into the fresh week. A mixed outlook appears to be the case for this week with the focus over trade and US labour market updates being the key items. On one hand, the list of targeted Chinese imports remains to be seen from the US trade representative, with speculation that China has more retaliatory measures on standby. On the other hand, a pickup in wage inflation has been expected, proving to be conflicting forces for USD/Asians. Better insights may just be what is needed for the currency pairs to take a clearer direction.

MAS preview

In the lead up to the next Monetary Authority of Singapore meeting, date to be confirmed, the expectation for the central bank to restore an upward slope for the nominal effective exchange rate (NEER), however, puts the Singapore dollar up as a candidate for further strengthening. Utilising an exchange rate policy, due to the country’s export-dependent nature, the Singaporean central bank manages the local currency against a trade-weighted basket of currencies that amount to the Singapore dollar S$NEER. The current slope of this band in which the S$NEER traverse had been neutral since the MAS’ April 2016 meeting.

Certainly alongside the rest of the Asian currencies, external influences had been strong drivers for their movements of late. However, against the backdrop of positive fundamentals and rising interest rates in advanced economies, the time may be ripen for the Singapore central bank to alter monetary policy for the first time since April 2016 and that could effect a reaction for the Singapore dollar. The meeting is expected to unfold in the second week of April, between 9 and 13 April, one to watch for. A mild appreciating slope, of about 0.5%, appears to be the view from the majority and the result would be weighed against this expectation.

USD/SGD had been held supported at around $1.3099, watching the abovementioned trade skirmish developments and also the upcoming MAS turnout. Survey from Bloomberg showed that while the majority are expecting tightening, the proportion had not been overwhelming with potential reactions still to be seen, should that be the scenario. Watch for dips towards the $1.30 figure.


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