The MAS has kept the slope, band width and the centre of its SGD NEER policy unchanged, but removed the forward guidance, notes Frances Cheung, Research Analyst at Westpac.
Key Quotes
“The MAS has maintained the rate of appreciation of its SGD NEER policy band at zero percent, with the width of the policy band and the centre unchanged. The forward guidance “extended period” was dropped. The market had mostly priced in the removal of the forward guidance, and some participants might even have had a slim hope for an outside chance of a more hawkish action. As such, initial reaction was a tad higher in SGD rates while spot USD/SGD was up mildly after some two-way fluctuations in the first few minutes. But overall reaction was muted. On growth and inflation forecasts, the MAS sounds mildly softer on inflation, while the “upgrade” to 2017 GDP forecast is more of a mark-to-market exercise.”
“In the latest MPC statement, the MAS mentioned the October 2016 MPC statement (but not the April 2017 one) regarding the forward guidance, which may be the point of time this prior “extended period” was referenced against. With the MAS having the flexibility to tighten if needed, there will be from time to time market expectation for that, though the inflation outlook remains benign. Against this backdrop, and if SGD liquidity continues to be supportive, the outperformance of short-end SGD rates over USD rates is likely to continue, with forward points potentially suppressed. Spreads between SGD and USD rates are relatively wide for spot rates and short-dated (1Y and 2Y) forward short-end (1Y to 3Y) rates. There is a higher uncertainty as to whether this SGD rates outperformance can be sustained for longer tenors, given diluted impact from forward points and if global rates remain on an uptrend.”
“The SGD NEER has been trading in the upper half of the policy band for most of the time since the April 2017 meeting, fluctuating around a strengthening trend. The SGD NEER is likely to trade mostly at the upper half of the band given the MAS has the option to tighten. That said, premised on our view for the USD to broadly strengthen, it will be tough for the SGD NEER to stay sustainably at more than 1% above the centre.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.