Singapore dollar strengthens after core CPI in June firms
The Singapore dollar (SGD) strengthened by about 30 pips to 1.3590 against the US dollar after core inflation in Singapore firmed from 1% to 1.1% yoy in June, according to the Monetary Authority of Singapore (MAS). This is due to higher services inflation, reflecting contributions from rising holiday expenses. The MAS said that core inflation is likely to average around 1% in 2016. This implies that core inflation needs to be around 1.25% for the rest of 2016 after averaging around 0.75% in the first half of this year. In our view, this is rather optimistic. We expect core inflation to remain subdued as the seasonal effects in June fade and economic growth slows in the coming months.
FX-Flash-SGD-gains-but-not-for-long-25-July-2016.pdf (132 KB)
SGD likely to decline to 1.40 against the US dollar by the end of 2016
Since 14 July when advance estimates for economic growth in the second quarter came in stronger than expected, the S$NEER has declined by about 0.6%. This is due to the SGD underperforming against the US dollar, Euro and Chinese yuan. However current levels in the S$NEER are still estimated to be around 1% above the mid-point of the policy band. We expect the SGD to decline towards 1.40 against the US dollar by the end of this year, given our view that the MAS is likely to lower the centre of policy band later this year in October.