No stimulus needed. Singapore Finance Minister Tharman Shanmugaratnam was clear in his words. Instead of non-committal rhetoric such as “if necessary”, “when needed”, Tharman was clear in his stance and by extension the stance of Monetary Authority of Singapore. The finance chief of the city state said that there isn’t an “output gap”, which suggest that further stimulus or “easy monetary policy” will not help in Singapore’s economic condition, but merely result in higher rate of inflation.
In this regard, the Finance Minister is absolutely correct. It seems that the recent dip we’ve seen in Singapore’s economy may stem from a structural issue of the economy – producing goods that nobody wants. And that is not something stimulus on Singapore’s own economy can help. As such, a proper call of action would be to enhance productivity within Singapore – e.g. producing better quality goods, or lowering COGS/ increasing efficiency to match those of international standards. These measures should theoretically have a pro SGD effect in the long run, which will help Singapore combat rising inflation which is plaguing the Asia region.
It seems that USD/SGD did not receive the memo, with SGD actually weakening despite Tharman categorically reject a weaker SGD in the near future. Price did head lower, breaking 1.237 floor yesterday, but that was due to global optimism post Bernanke QE endorsement, which weakened USD significantly. Evidence of USD influence can be observed from the subsequent rebound after the US Senate failed to pass 2 bills aimed to push sequester cuts back – strengthening USD during American trading hours. Price has since pulled back from the Asian session high, but is still supported strongly by Kumo’s Senkou Span A and the interim floor 1.237. Though price is around 20 pips lower from the high, Kumo still look poised to turn bullish with a twist, and price is certainly not far away from another test of breaking above Senkou Span B for yet another move towards 1.24.
Daily Chart shows that bullish bias remains the theme of 2013, with a bullish Kumo twist in early January. The Kumo may also provide support for price action, nudging and pushing it higher towards 1.24. Even if Kumo is breached, the rising trendline since Mid Dec 2012 may assist further to keep price lifted.
It is important to note that USD/SGD’s ascension has been taking place when MAS has been silence about its policy. In the past 2 months, we’ve seen Central Banks from various countries such as Korea, Thailand, and India coming out to say that they will “ease if necessary”. By simply staying mute, MAS will be shown in a bullish light, which should strengthen SGD. The reason perhaps is that market never believe that MAS will weaken and adjust SGD’s trading band – SGD version of rate policy, due to the high inflation rates in Singapore. As such, Tharman’s open declaration of no rate cuts is not surprising to the market, and is regarded as par for the course. On top of this, Singapore is aiming to cool its asset prices with higher taxes and stamp duties, which will almost certainly drive foreign funds away. As the appreciation of SGD for the past few years has been due to increased heavy overseas funds, a push of funds outside of Singapore will have the opposite effect, weakening SGD.
Going by the same argument, if US sequester cuts result in heavy erosion of market confidence, we could see a revival of SGD in Q2 2013 as global investors may want to liquidate their US assets and transfer into Singapore for safety. However this time round the in-flow may be even more aggressive as investors will want to beat the dateline before increase in stamp duties and taxes kick in. With so many permutations of factors at play, USD/SGD is certainly going for a bumpy ride, but one thing is for sure – MAS’s stance will play less and less of a role if it continues to keep quiet in the months to come.
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