USD/SGD: Reduced risks of further MAS easing and improving global trade are positives for the SGD – Standard Chartered

The Monetary Authority of Singapore (MAS) opts for stability and keeps monetary policy settings unchanged. Reduced risks of further MAS easing and improving global trade are positives for the SGD, according to economists at Standard Chartered. The USD/SGD reaction to the MAS policy announcement was fairly muted and was last seen trading around 1.36.

Key quotes

“The MAS kept the SGD NEER policy band slope, bandwidth and centre unchanged on Wednesday. This follows its dual easing decision at end-March. The slope of the SGD NEER policy band is currently flat and we estimate the bandwidth at +/- 2% on either side of the policy band. The MAS expects core and headline inflation to rise to an average 0-1% and -0.5-0.5%, respectively, in 2021, versus the 2020 forecast range of -0.5-0% for both.”

“Our outright base case for next April’s MAS policy meeting is that the status quo will be maintained.”

“With the MAS policy meeting now out of the way, we expect USD/CNY and the US elections to be the primary drivers of USD/SGD in the coming weeks. We expect the SGD NEER to trade predominantly in the strong half of the policy band. The latest MPS noted that the SGD NEER has hovered slightly above the mid-point of the policy band, which is in line with our estimates.”  

“Our year-end USD/SGD forecast is at 1.36. However, the balance of risks has shifted towards a stronger SGD. The recovery in global trade has been fairly strong, which is SGD supportive. In addition, polls have shifted further in Biden’s favour in recent weeks, which should be negative for the USD. Finally, the tail risk of further MAS easing has lessened. As such, we see increased downside risks to our USD/SGD forecast trajectory.”