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Singapore Dollar Gains, USD/SGD Falls as MAS Surprises with Tightening. Now What?

Singapore Dollar Gains, USD/SGD Falls as MAS Surprises with Tightening. Now What?

Daniel Dubrovsky, Strategist

Singapore Dollar, USD/SGD, Monetary Authority of Singapore, MAS, GDP – Market Alert

  • Singapore Dollar gains as MAS unexpectedly tightens monetary policy
  • Focus for USD/SGD may shift back to external risks, emerging markets
  • Broader uptrend still holds for USD/SGD, eyes are on key support points
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The Singapore Dollar rose against the US Dollar, sending USD/SGD lower after the Monetary Authority of Singapore (MAS) unexpected tightened policy at its biannual meeting. The MAS did this by slightly increasing the slope of its currency band. Singapore’s central bank is unique in that instead of managing benchmark lending rates, it oversees exchange rates. This is due to the city-state’s heavy reliance on trade.

That leaves Singapore potentially vulnerable to rising external price pressures, recently driven by rising energy prices and supply-chain disruptions. Almost no economists polled by Bloomberg anticipated tightening today. Because of slim tightening expectations, the Singapore Dollar had a particularly volatile reaction to the announcement, sending USD/SGD lower as much as 0.3%.

The MAS noted that this tightening will help ensure price stability over the medium term as it sees core inflation close to 2% in the medium term. It also largely dropped the accommodative language from the previous statement in April. Mixed third quarter GDP data also crossed the wires. The economy expanded 6.5% y/y versus 6.6% anticipated. Quarter-over-quarter growth was softer, at 0.8% versus 1.1% seen.

The Singapore Dollar can at times be sensitive to risk appetite, especially around Emerging Markets. On the chart below, I have highlighted the often negative correlation between USD/SGD and the MSCI Emerging Markets Index (EEM). This leaves the Singapore Dollar particularly vulnerable in the wake of what is expected to be Fed tapering starting as early as perhaps November. If rising Treasury yields come back into play, the Singapore Dollar risks relinquishing some of the gains witnessed today.

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As we head into the weekend, the focus turns to US retail sales and University of Michigan sentiment data on Friday. While data from the US continues to underperform relative to expectations, this has been by an increasingly shrinking margin since the middle of September. Meanwhile, US-China tensions could risk heightening in the coming months as the USTR evaluates actions against China over its non-compliance with the phase one trade deal. Souring sentiment may rekindle upside USD/SGD momentum.

USD/SGD Vs. MSCI Emerging Markets Index

USD/SGD Vs. MSCI Emerging Markets Index

Chart Created Using TradingView

Singapore Dollar Technical Analysis

The drop in USD/SGD has brought it back to the 1.3474 – 1.3502 inflection zone while simultaneously testing rising support from May. As such, the broader uptrend still remains in play. Moreover, below the trendline sits the 200-day Simple Moving Average. The latter could also reorient the pair higher. As such, while USD/SGD seems to be on the decline in the near-term, the broader path seems to remain focused to the upside. Finding confirmation of breakouts will be key.

USD/SGD Daily Chart

USD/SGD Daily Chart

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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