FX comment – S$NEER at bottom of policy band?

by: Roy Teo

  • S$NEER trading near bottom of policy band
  • SGD to ease to 1.40 by the end of 2015

S$NEER trading near bottom of policy band

Our model implies that the S$NEER is trading near the bottom of policy band in recent weeks. This implies that weakness in the Singapore dollar (SGD) could be limited to current levels of around 1.36 against the US dollar (USD) if the direction in other currencies remain lacklustre. We do not rule out that the Monetary Authority of Singapore (MAS) could be defending weakness in the SGD when prices trade closer to 1.3650.

SGD to ease to 1.40 by the end of 2015

Singapore’s core inflation print of 1% in January came in weaker than market expectations. We think core inflation is likely to head lower in the coming months as the full effects of lower oil prices filter through the economy. In fact core inflation could breach the lower bound of MAS 0.5-1.5% range if crude oil prices remains low. As highlighted in our FX Watch – SGD – Further easing on cards published on 3 February 2015, in our view it is likely the MAS will re-center the midpoint of policy band lower in the next monetary policy meeting scheduled in April to reduce the need to intervene and defend weakness in the SGD. Our year end USD/SGD forecasts remain unchanged at 1.40.