Weakness in SGD experienced some reprieve in the past few trading days after trading as low as 1.243 to USD on 1st Feb. Since then, SGD has strengthened a fair bit, breaking 1.240 round number and is looking to test 1.235 support which has been the ceiling between Sep – Dec 2012. Despite the slight recovery, SGD is still undoubtedly weaker in 2013, falling 1.2% since Jan 1st against the Greenback, 3.8% against Euro and 1.0% against the Yuan. The only major currency SGD appreciated against was the free falling Yen due to “Abenomics”.
Some analysts attribute the decline in SGD due to optimism in US and European markets. Though Singapore is classified as a developing country, the SGD is widely considered as a “safe haven” due to the triple-A rated SGD Treasuries and extremely low interest rate, making it a prime candidate for capital protection. Another prime reason for the decline is due to weakening Singapore economic fundamentals, with manufacturing sector shrinking and exports falling, partly due to appreciating SGD making exports less attractive to surrounding neighbours. Indeed, the SGD has appreciated about 4% against a trade weighted basket of currencies according to DBS, Singapore largest bank and MAS’s agent bank for SGD transactions.
Stochastic indicator from the daily chart shows a potential top with readings currently below 80.0. Unfortunately for bears, the rate of decline from 1.243 appears to have slowed down, with Stochastic indicator showing both Stoch and Signal line gravitating towards each other. A “bottoming” of Stoch reading actually coincides with price heading towards 1.235, hence increasing the possibility that 1.235 resistance turned support will hold. Furthermore, there isn’t any change in fundamentals for Singapore or US in the past few days, suggesting that the decline from 1.243 could be simply profit taking rather than a shift in sentiment that could lead USD/SGD lower.
Declining channel has been formed on the hourly with price looking to head lower. 1.234 could still provide some support in the form of Channel Bottom, with 1.236 providing interim support. Near-term there isn’t any major news that could shift sentiment of USD/SGD. However, in Q2, we will have MAS policy meeting (April) and US sequestration and Debt Ceiling (May) which could change long-term optimism/pessimism depending on their respective outcome. Ability for the US to dodge yet another bullet will help elevate global economic confidence – draining foreign funds away from Singapore resulting in further depreciation of SGD. MAS decision, though predictable, may have surprising outcome, as a stay of hand by the MAS to maintain SGD exchange rate will help SGD in the short run, but potentially further weaken Singapore’s underlying economy which is a long-term bearish sign. Shifting SGD trading band lower may weaken SGD in the short-term but long term may improve Singapore’s outlook, hence bullish SGD in the long-term.
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