Singapore Department of Statistics released March’s inflation data earlier today, showing M/M gain of 3.5%, the lowest since Oct ’12 and below median expectation of 3.7%. USD/SGD remains muted, with price staying above 1.24 without any fuss. Softening of inflation numbers has been attributed to lower Certificate of Entitlement prices (tax on private vehicles), with Y/Y coming in at 8.6% vs Feb’s 17.4%, and -3.5% M/M vs 4.3% previous. Another big contributor is the lower food prices post Chinese New Year price hike – food prices have shrank by 0.5% M/M and a manageable 1.8% Y/Y. Housing prices remain high, with inflation slightly lower than Feb’s 5.9%, with Y/Y figure standing at 5.8%, and M/M at 0.3%, marginally lower than the 0.4% seen. It seems that the speed bumps placed by MAS isn’t really hurting demand of properties, especially since Singapore remain a favorable safe haven for long term investments with AAA ratings that most other developed economies do not enjoy currently.
The weaker inflation allows MAS scope to ease in October if they so wishes. With Singapore’s industrial production and exports falling, MAS may wish to use this opportunity to weaken SGD in order to make exports competitive again. However, with the next meeting still a good 6 months away, it is likely that market may not wish to price in such a scenario with numerous other event risks along the way. This may perhaps explain a little about the lack of reaction coming after the release of the data.
From a technical viewpoint, USD/SGD is currently on the up after bouncing off the 1.235 support. However, stochastic readings is showing a divergence, which actually presents a good bullish signal for traders who thinks USD/SGD can climb further. With the rising trendline intact, price may be able to straddle along the trendline higher, with a possibility of bullish acceleration towards 1.25 should the recent swing high be breached.
With 1.235 support staying intact, the threat of price moving back towards 1.22-1.225 has been averted. Instead the rally since Dec ’12 is back in play, which will allow 1.245 to be tested again. A break above 1.245 will allow price to seek rising Channel bottom as possible bullish objective, and a break into the Channel may possibly result in an acceleration towards Channel top, which current stands above 1.25 and may usher in further bullishness if Mar 2013 High has been conquered.
Fundamentally, a large part of current’s rally is due to USD strengthening amidst weaker corporate earnings. A larger than average portion of companies have released worse than expected Q1 earnings, and that drove stock prices lower and USD higher. This has a profound impact on USD/SGD especially due to the lack of liquidity in SGD. Should earnings continue to disappoint, it is likely that USD/SGD will be able to see higher highs easily.
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