Singapore exports down 9.6% in Q3; USD/SGD could be impacted

Singapore exports are down 9.6% year-on-year for the third quarter of 2019, according to new data from government trade agency Enterprise Singapore.

Across all components, Singapore’s total merchandise trade declined by 6.7% in Q3 2019, following a 2.2% decrease in the previous quarter, due to a decline in both oil and non-oil trade. Oil trade contracted by 19.0% in the third quarter amid lower oil prices from a year ago.

Total non-oil domestic exports fell by 9.6% in Q3 2019, after a 14.7% contraction in the previous quarter, due to smaller shipments of both electronic and non-electronic products.

Singapore central bank’s monetary policy

In view of this, how could the Singapore dollar be affected in the coming months?

A little over a month ago, the Monetary Authority of Singapore (MAS) had stated that it would ‘slightly’ reduce the pace of appreciation of the Singapore dollar, adding that it ‘will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospect for inflation and growth weaken significantly’.

MAS currently employs a monetary policy framework known as the Singapore nominal effective exchange rate, a float regime in which it manages the Singapore dollar against a trade-weighted basket of currencies within a policy band.

It does this because of the ‘small and open’ nature of the Singapore economy, ‘where gross exports and imports of goods and services are more than 300 percent of GDP and domestic expenditure has a high import content; the exchange rate has a much stronger influence on inflation than the interest rate’.

If MAS were to tighten the policy band, there might be an appreciation in the Singapore dollar, and if they were to loosen the policy band, the pace of appreciation might be reduced.

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Source: Bloomberg

Exchange rate to be relaxed: DBS analyst

Last month, following Singapore’s Q3 GDP better-than-expected but still relatively soft earnings, the central bank stated that ‘inflationary pressures should be muted’.

Now, with exports also coming up less-than-stellar, MAS could potentially relax its exchange rate policy further, according to DBS FX strategist for G3 and Asia, Philip Wee. The pace of inflation stands at 1.0% at present, but could very likely be flattened to 0.5%, he noted.

Wee had commented in national broadsheet The Straits Times last month that the USD/SGD could decline to as low as S$1.42 per US dollar (USD) by the end of the year, due to weaker growth.

Global headwinds and impending trade deals could also drive the SGD down further, he added.

‘We remain cautious on the outlook for the SGD. The trade-reliant Singapore economy is vulnerable to heightened growth worries in the world's largest economies. The trade war remains the top downside risk now, seen pushing China's growth below 6 per cent in 2020 amid negative spill over effects into the US economy,’ said Wee. ‘Multiple factors - higher US tariffs on EU goods, a possible no-deal Brexit on Oct 31, and a weak German economy - could also tip the euro zone economy into recession.’