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28 January 2015
MACRO | FX RESEARCH | Singapore
D
FX In-Sight
SGD: Surprise MAS Moves Lift The
USD/SGD
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MAS surprised during an unscheduled policy meeting with
a cut in the policy slope of the SGD NEER, while keeping
the policy stance of a “modest and gradual appreciation
of the SGD NEER” intact. Other policy variables including
the width of the band were left unchanged. Today’s
policy move reflected the change in the inflationary
environment expected in 2015, largely because of
receding global oil prices. The MAS now expects headline
and core inflation to come in -0.5-0.5% and 0.5-1.5%.
Before policy announcement, we estimated that the slope
of the SGD NEER was at 2.0% p.a. Though no details were
revealed, we now estimate that the slope of the band is
at 1.0% p.a.
Given the policy announcement today and the
concomitant move in the USD/SGD so far, we now revise
our forecast for the USD/SGD higher in 2015. The pair is
expected to come in at 1.3650 (previously 1.3550),
1.3550 (1.3400) and 1.3600 (1.3500) by end-1Q, -2Q and
-3Q respectively before settling lower to 1.3350 (1.3200)
by end 2015. Technically, we could see the pair remain
supported in the interim, key levels to look out for are
1.3660 and 1.3790 (resistance) and 1.3460 and 1.3360
(support).
MAS Reduces Slope Of Policy Band
Surprised reduction in slope of policy band… In a surprise
unscheduled policy meeting move this morning, the MAS reduced
the slope of its policy band while keeping other policy variables,
including the width, unchanged. Also unchanged was the “modest
and gradual appreciation of the SGD NEER policy band” stance that
has been in place since Apr 2012. The policy move was a surprise as
we had expected only a band-widening in the Apr meeting to
accommodate the greater volatility in the FX markets.
…underpinned by expectations of lower core inflation. The
rational provided by the MAS for its move today was the lower
projection for inflation, particularly core, in 2015. Aside from
lower car prices and imputed rentals on owner-occupied
accommodation, the biggest drag on inflation this year is expected
to come from receding oil prices, which MAS is forecasting to
average USD40-70 per barrel in 2015 (WTI) compared to the USD93
average recorded in 2014. Also weighing on inflation would be the
smaller pass-through from the tight labour market because of the
more moderate economic environment and the one-off reduction
in healthcare cost because of the Pioneer Generation Package. The
MAS is now expecting headline and core inflation to average -0.50.5% (from 0.5-1.5%) and 0.5-1.5% (from 2-3%) respectively in 2015.
SEE PAGE 4 FOR IMPORTANT DISCLOSURES
GM FX Research
Saktiandi Supaat
[email protected]
(+65) 63201379
Fiona Lim
[email protected]
(+65) 63201374
Leslie Tang
[email protected]
(+65) 63201378
Christopher Wong
[email protected]
(+65) 63201377
SGD: Surprise MAS Moves Lift The USD/SGD
Growth-Inflation Dynamics Still In Play
Uneven pace of economic growth … With inflation revised downwards,
the focus of the exchange rate policy ahead should return to growth. MAS
is expecting uneven pace of growth across countries with US leading the
growth pack. However, this is likely to be partially mitigated by the
weakness in the Eurozone, Japan and China. In the rest of Asia, growth is
likely to be mixed with some benefiting from a modest pick-up in global IT
demand, while others are weighed down by weaker commodity exports.
… but slower global growth could mute domestic growth.
More
importantly, the low global oil price scenario hints of the possibility that
global demand might not be as strong as anticipated and this could weigh
on the Singapore economy especially in the first half of the year. It is not
impossible for domestic growth then to be muted in 2015. The government
is still expecting the economy to grow by 2-4% this year but there is now a
greater possibility of growth coming in at the lower end of the forecast
range. Reducing the pace of appreciation of the SGD NEER would better
align monetary policy with the lower inflationary environment amid a
possible slowdown in domestic growth.
Growth and inflation outlook for 2015 are likely to be reaffirmed in the
upcoming MAS Apr policy meeting. Should growth and inflation
deteriorate significantly ahead, a neutral stance or band widening
cannot be ruled out at the Apr or Oct meetings.
New Slope
As is the usual practice of the MAS, there were no details accompanying
the policy announcement regarding the policy slope or the width of the
band or where the band is centered. Our assumption of the policy slope of
the SGD NEER had been at 2.0% p.a. before the change in policy. With the
reduction in the policy slope, we now estimate that the slope of the band
is at 1.0% p.a.
Implication for the USD/SGD
Given the policy announcement today and the concomitant move in the
USD/SGD so far, we are now revising our forecast for the USD/SGD higher
in 2015. We now project the pair to rise to 1.3650 in 1Q but should ease to
1.3550 in 2Q before rising again to 1.3600 as the Fed begins to normalize
the Fed fund rate. But as growth becomes more entrenched in the US,
dollar strength should ease and this should allow the USD/SGD to settle
lower to 1.3350 by end-2015.
Forecast
1Q 2015
2Q 2015
3Q 2015
4Q 2015
USD/SGD
1.3650
(1.3350)
1.3550
(1.3400)
1.3600
(1.3500)
1.3350
(1.3200)
28 January 2015
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SGD: Surprise MAS Moves Lift The USD/SGD
Technicals Suggest A Move Towards 1.3660
USD/SGD has broken above its previous resistance at 1.3460 is now trading
higher around 1.3520. Previous resistance (1.3460) has now turned into key
support and next support seen at 1.3360 (38.2% Fibonacci retracement of
1.5582 – 1.1990). Momentum continues to be bullish on the monthly,
weekly charts. We could see the pair remain supported in the interim,
looking for next leg higher towards 1.3660, en-route to 1.3790 (50%
Fibonacci retracement).
Weekly Chart: Bullish
Source: Maybank FX Research, Bloomberg
28 January 2015
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SGD: Surprise MAS Moves Lift The USD/SGD
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Published by:
Malayan Banking Berhad
(Incorporated in Malaysia)
Saktiandi Supaat
Fiona Lim
Leslie Tang
Christopher Wong
Head, FX Research
Senior FX Analyst
Senior FX Analyst
Senior FX Analyst
[email protected]
[email protected]
[email protected]
[email protected]
(+65) 63201379
(+65) 63201374
(+65) 63201378
(+65) 63201377
28 January 2015
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