MAS preview - holding one's horses

April policy meeting

The semi-annual policy statement will once again be released alongside the advance estimate of Singapore’s Q1 GDP on Friday, April 12.

After seeing two consecutive tightening in April and October last year, the MAS is widely expected to keep the slope unchanged this round. This is despite various models finding the Singapore dollar nominal effective exchange rate (NEER), a weighted average rate of the local currency against a basket of foreign currencies, thriving nearer the upper limit of the trading band. The MAS manages monetary policy using an exchange rate regime and keeps the NEER fluctuating within a 1.0% band from its midpoint. While this highlights the room for the MAS to implement another round of tightening through shifting the slope from the current 1.0%, the uncertainty going forward is expected to invite the MAS to pause this month.

Growth wavering, inflation pressure eased

Assessing the growth situation since the October meeting, one would have notably seen the growth slowdown unfold into the end of 2018. Into 2019, the weakness in exports had also been apparent for the export-oriented local economy with the weak external environment underpinning the trend. One can see in the chart below that the non-oil domestic exports (NODX) smoothened out on a 3-month moving average basis (yellow line), showing a slight sign of rebound but remained below levels of last year. This is not unique to Singapore with regional performance including Asia’s anchor China slumping at the start of the year. Some green shoots seen in China’s PMI numbers offer hope though we would have to monitor the situation into H2 for whether the MAS would once again move.

(Source: Refinitiv data, IG)

SGD drivers

In light of the stagnant monetary policy expectations, look to any deviation of the advance Q1 GDP print from consensus for any impetus for SGD pairs to move. The current market consensus sits at 1.5% year-on-year (YoY), down from the 2.2% seen in Q4 2018 and would mark the weakest quarter seen since Q3 2016. Any disappointment here could shift prices towards the key support at around $1.3472 levels for USD/SGD that had been mostly rangebound and externally driven of late.

Another pair perhaps watching more would be SGD/JPY given the rangebound trade of between 80.099 and 82.903 that had sustained since at least around February 2018. The improvement of the risk sentiment underpinned by positive US-China trade views and receding growth concerns had seen the pair edging towards the upper limit of the range. Even if a US-China trade deal should come into fruition, the lingering growth woes may keep this rangebound trade alive. Watch for any reversal ahead.