SGD: Upward pressure? - Commerzbank

Frances Cheung, analyst at Westpac, points out that SGD NEER has been moving down to around 1% above mid-point from as high as 1.8% above mid-point earlier in the year, in line with their view for a downward drift.

Key Quotes

“Singapore being added to the monitoring list under the US Treasury report is a bit of a surprise, given its explicit SGD policy as a monetary policy targeting price stability rather than export competitiveness.”

“The MAS is unlikely to tweak its SGD policy because of an external report. If there is any implication, market expectation may be affected at the margin, in that expectation will not easily turn more dovish. That may put mild upward pressure on SGD NEER – after the steady downward move. However, any reaction should be short-lived and upward pressure on USD/SGD is likely to stay amid the uncertainty over external demand, with the next resistance at 1.3840.”

“Gauging market pricing of MAS is not straightforward. Our model suggests market is expecting a roughly stable SGD NEER position with respect to the band towards the October meeting, but a lower SGD NEER position with respect to the band at the April 2020 meeting. While this may reflect expectation for some reduction in the slope at the April 2020 meeting, it may also simply reflect the view that SGD NEER will fall within the existing band.”

“We tend to believe the market is neutral in terms of MAS expectation, given that the current 1% slope (our assumption) does not leave too thick a buffer for easing. The SGD view is still likely to exert upward pressure on SGD forward points.”