The Singapore dollar (SGD) has not only strengthened on the back of recent USD weakness, but also outperformed the trade-weighted basket of currencies against which it is managed due to increased foreign inflows – likely IPO and M&A related, notes Khoon Goh, Head of Asia Research at ANZ.

Key Quotes

“The S$NEER has risen to 1% above the midpoint of the policy band, which has been a key resistance level in the past.”

“We do not see SGD strength being sustained, as economic growth is not showing signs of a pick-up in momentum and inflation remains low. The advanced Q2 GDP print came in below expectations at 2.5%y/y, and June CPI data showed muted core inflation pressures. Hence, the current MAS neutral monetary policy stance is set to remain for some time. The Q2 labour market data out this Friday will likely show ongoing labour market slack.” 

“To express our view that the S$NEER will retreat from current levels, we prefer to express it via crosses in order to remove the USD effect. We note that there is a strong seasonal effect in SGD/JPY in the month of August, where this cross has a tendency to decline. In the last 17 years, SGD/JPY has fallen on 14 occasions for an average spot decline of 1.3%. Figure 2 shows the August seasonal pattern for SGD/JPY.”

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