FX comment – SGD strengthens as Q3 GDP surprise on upside; MAS less dovish

by: Roy Teo



  • Singapore economy avoids technical recession
  • S$NEER appreciation rate reduced
  • SGD reacted positively for now


Singapore economy avoids technical recession

Advance estimates show that the Singapore economy avoided a technical recession in the third quarter, expanding 0.1%qoq against market expectations of 0.1%qoq contraction. Economic growth in the second quarter was also revised from -4%qoq to -2.5%qoq. As a result economic growth has averaged around 2%yoy in the first three quarters of this year. Looking ahead, we think that the uneven global recovery and recent haze will remain as headwinds to the Singapore economic recovery. The haze is likely to impact the tourism sector, retail sales and construction projects. In addition Singapore exports to Indonesia, Malaysia and Thailand could also be impacted as these economies are also affected by the haze.


S$NEER appreciation rate reduced

The Monetary Authority of Singapore (MAS) maintained its policy of a modest and gradual appreciation of the S$NEER policy band. However the rate of appreciation will be reduced slightly. There is no change to the width of the policy band and level at which it is centred. This is slightly more hawkish than our expectation that the MAS will shift the S$NEER appreciation policy bias to neutral. The MAS projects that the Singapore economy will expand at a modest pace in 2015 and 2016, with growth slightly weaker than previous forecast. Core inflation is also expected to gradually rise in 2016.


SGD reacted positively for now

The Singapore dollar (SGD) strengthened by almost a cent to near 1.39 against the US dollar after the better than expected economic data release and less dovish decision from the MAS. At the time of writing, profit taking subsequently resulted in most of the SGD gains being erased. We see downside risk to our 2015 year end USD/SGD target of 1.44. Nevertheless, we maintain our bearish view on the SGD as a weaker euro, Japanese yen and firmer short term yields in the US will weigh on the SGD. A slower Chinese economy (GDP to slow from 7% in 2015 to 6.5% in 2016) will also be headwind to Singapore exports outlook. Our 2016 year end USD/SGD forecast of 1.50 remains unchanged.