USD/SGD soars to five-month high following MAS comments
The Singdollar weakened against the greenback after the Singapore central bank indicated an easing of the exchange rate.
The USD/SGD skyrocketed 0.36% to a five-month high of 1.38647 on Thursday 06 February.
SGD dropped after MAS indicated ‘room within policy band’
The rally took place as the Singapore dollar weakened against the greenback, shortly after the Monetary Authority of Singapore (MAS) released a statement saying that there is sufficient room within its currency policy band to accommodate an easing of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER).
MAS said this is in line with the weakening of economic conditions as a result of the outbreak of the 2019 novel coronavirus (2019-nCoV) in China and other countries, including Singapore.
The S$NEER is a float regime that manages the Singapore dollar against a trade-weighted basket of currencies within a policy band. The Singapore central bank’s monetary policy framework is centred on the S$NEER regime.
If MAS were to tighten the policy band, there would be an appreciation in the Singapore dollar, and if they were to loosen the policy band, the pace of appreciation is likely to be reduced.
Can the USD/SGD sustain this level?
Prior to the comments, the USD/SGD was trading sideways around the 1.38144 mark.
The currency pair has calmed down slightly by late-Thursday morning to around 1.38513.
UOB analysts said that the USD could probe the 1.3840 resistance, but that a sustained rise above this level is unlikely (next resistance is at 1.3880) throughout the rest of Thursday. On the downside, 1.3765 is expected to be strong enough to hold any intraday pull-back (minor support is at 1.3790).
The bank added in its daily note: ‘USD has come a long way since we indicated about 2 weeks ago that “downward pressure has dissipated” and expected it to “edge higher”.
‘While our expectation for USD to move higher is correct, we did not anticipate the pace of the advance as the “correction” morphed rapidly into a full-fledged uptrend. As of yesterday (05 February), USD not only registered a higher high for the eighth straight day, it also came close to erasing all the three-month decline from the October’s peak of 1.3878 within the span of about two weeks.’
From here, analysts posit that the USD appears poised to register the largest two-week advance since Trump was elected as president more than three years ago in November 2016.
MAS policy band due for review in April 2020
For now, the market will have to contend with the fact that MAS’ policy band is only due for a review in April.
The last time MAS adjusted the policy band was in October 2019, when it reduced slightly the rate of appreciation of the SGD by loosening the S$NEER policy band. It had stated that it would ‘closely monitor economic developments and is prepared to recalibrate monetary policy should prospect for inflation and growth weaken significantly’.
The S$NEER has been fluctuating near the upper bound of the policy band since then, the Singapore central bank further noted in Wednesday’s note.
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.