Singapore exports down 9.6% in Q3; SGD could be impacted
With exports down, market analysts are expecting the Singapore central bank to ease up control on the Singapore dollar.
Singapore exports are down 9.6% year-on-year for the third quarter of 2019, according to new data from government trade agency Enterprise Singapore.
Across all components, Singapore’s total merchandise trade declined by 6.7% in Q3 2019, following a 2.2% decrease in the previous quarter, due to a decline in both oil and non-oil trade. Oil trade contracted by 19.0% in Q3 2019 amid lower oil prices than a year ago.
Total non-oil domestic exports fell by 9.6% in Q3 2019, after a 14.7% contraction in the previous quarter, due to smaller shipments of both electronic and non-electronic products.
Singapore central bank’s monetary policy
In view of this, how could the Singapore dollar be affected in the coming months?
A little over a month ago, the Monetary Authority of Singapore (MAS) had stated that it would ‘slightly’ reduce the pace of appreciation of the Singapore dollar, adding that it ‘will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospect for inflation and growth weaken significantly’.
MAS currently employs a monetary policy framework known as the Singapore nominal effective exchange rate, a float regime in which it manages the Singapore dollar against a trade-weighted basket of currencies within a policy band.
It does this because of the ‘small and open’ nature of the Singapore economy, ‘where gross exports and imports of goods and services are more than 300 percent of GDP and domestic expenditure has a high import content, the exchange rate has a much stronger influence on inflation than the interest rate’.
If MAS were to tighten the policy band, there might be an appreciation in the Singapore dollar, and if they were to loosen the policy band, the pace of appreciation might be reduced.
Exchange rate to be relaxed: DBS analyst
Last month, following Singapore’s Q3 GDP better-than-expected but still relatively soft earnings, the central bank stated that ‘inflationary pressures should be muted’.
Now, with exports also coming up less-than-stellar, MAS could potentially relax its exchange rate policy further, according to DBS FX strategist for G3 and Asia, Philip Wee. The pace of inflation stands at 1.0% at present, but could very likely be flattened to 0.5%, he noted.
Wee told national broadsheet The Straits Times that the USD/SGD could decline to as low as S$1.42 per US dollar (USD) by the end of the year, due to weaker growth.
Global headwinds and impending trade deals could also drive the SGD down further, he added.
‘We remain cautious on the outlook for the SGD. The trade-reliant Singapore economy is vulnerable to heightened growth worries in the world's largest economies. The trade war remains the top downside risk now, seen pushing China's growth below 6 per cent in 2020 amid negative spill over effects into the US economy,’ said Wee. ‘Multiple factors - higher US tariffs on EU goods, a possible no-deal Brexit on Oct 31, and a weak German economy - could also tip the euro zone economy into recession.’
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.