USD/SGD soars to five-month high following MAS comments

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.

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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.

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