The latest Survey of Professional Forecasters done quarterly by Central Bank Monetary Authority of Singapore (MAS) showed that analysts expect a growth of only 2.3% for GDP in 2013, slightly lower than the high end of MAS’s own estimate of 1-3% and half a percentage point lower than the previous median estimate of 2.8%. Inflation outlook has also improved, with CPI expected to rise by only 2.8% this year, much lower than the previous quarter 3.8% median and below MAS’s own estimated range of 3-4%.
Assuming that the private economists are correct, will a 2.3% be disconcerting for MAS? It is unlikely as this figure is still above the mid-range of MAS’s projection, which should make MAS feeling generally comfortable. However, there is a tendency for MAS to “under-promise” and “over-deliver” in its projections, as it is historically found to do. If this is true, then perhaps the decline in consensus estimate may start to ring alarm bells for MAS, as it indicates that Singapore’s economy is actually under performing compared to previous estimates, with further slowdown potentially waiting in the next half of 2013.
MAS may find comfort in the fact that the 0.5% fall in GDP estimate is accompanied by a 1 full percentage point fall in inflation. This would actually increase its scope to weaken SGD which it is currently hesitant to do so due to the high inflation rates plaguing Singapore right now. However, even with the expected decline in CPI, the revised numbers are still higher than historical average. Furthermore, inflation is expected to pick up once more to 3.1% in 2014 based on current data, which means MAS will be potentially risking higher inflation in 2014 if it choose to weaken SGD right now for the sake of the economy – which is still within MAS comfort level. Hence the likelihood of any change in SGD NEER policy (which is on a “modest and gradual” appreciation is low and it is highly likely that MAS will maintain current curve for SGD during October’s meeting.
This did not stop SGD from weakening during early Asian trading session though, sending price up to 1.258 after the capitulation of USD yesterday brought about by US stock decline. The weakening of SGD wasn’t severe, as price quickly reversed during early European hours from the technical bounce off the aforementioned level. Stochastic readings have formed a peak similar to the one found yesterday, and a bearish cycle seems likely from here out, with 1.252-1.254 interim support zone currently under threat. Should the lower end 1.252 gets broken, 1.24 round figure may open up as a plausible bearish target, but that is a long way from here and it is likely that price may stall along any of the interim support lines especially if Stochastic readings hit Oversold.
Longer term chart leans towards a weaker SGD, but current bullish outlook (rally since Jan 2013) is under threat with the possibility of price breaking back into the 1.2525/1,243 consolidation range. The failure to push above 1.26 may undo all the good bullish work of the Tweezers Bottom found on 6th and 7th Jun and bearish acceleration may occur should price start to trade below the 2nd candle of the “3 White Soldiers” pattern that extended the 1.243 rebound. Stochastic readings suggest that a bearish cycle may be in play soon, which may line up nicely in conjunction with a 1.2525 break, but caution should be practiced as price may bounce higher from 1.2525 which will validate broader uptrend and also the rebound from 1.243.