USD/SGD – 1.26 Broken Despite Stronger GDP Outlook

Despite a seemingly worsening labor market, Singapore’s GDP pulled a surprise rabbit out of the proverbial hat, growing at 3.8% Y/Y for Q2 2013, and 15.5% Q/Q (Seasonally-Adjusted annualized basis), a huge improvement compared to previous quarter’s 0.2% and 1.7% readings. This huge acceleration in growth rate prompted the Ministry of Trade and Industry (MTI) to revise its GDP growth forecast higher. Full year 2013 growth rate which was previously between 1.0 – 3.0% has since been revised upwards, to 2.5 – 3.5%. The 1.5% jump in the lower boundary of expectations highlights MTI’s confidence that this increased in growth rate is mostly sustainable. Interestingly, the upper limit of expectations has only been increased by 50 basis points, resulting in the narrowing of expectation buffer from a 2% wide to current 1% wide. It is unlikely that MTI has chosen to narrow the expectation range due to a greater confidence that their forecast will be accurate. Rather, the capping of upper limit to only a 50 bps increase suggest that economists are indeed cautious about the slowdown in China, and would like to keep a lid on over expectations – in typical Singaporean prudence (or “kiasu” fashion).

Looking beneath the headline growth rate, we can see that the surprise gains previous quarter has been driven by a stupendous growth in manufacturing sector, coming in at 32.1% Q/Q annualized rate. This growth has more than compensated for last quarter’s 12.1% decline, and allowed latest Y/Y figure to come out in the black, versus Q1’s 6.7% Y/Y decline. Once again, the 2 main ambit of Singapore’s manufacturing industries – Pharmaceutical and Electronics were the main contributors to Q2’s growth, helping to soothe the nerves of Singapore investors who were previously worried that the once vaunted “Made in Singapore” manufactured goods may not be as competitive as before on the international stage.

All other sectors seemed to be performing well too. Construction sector (a good indication of economy due to the link to infrastructural capital investment, and also related to the housing market) grew by 5.1% Y/Y, Wholesale & Retail Trade also grew at 5.6% Y/Y, while Finance sector expanded 13.1% Y/Y, continuing the strong double digit growth seen last quarter.

Hourly Chart


The all-round growth where no sector is left behind is highly encouraging, with SGD rallying strongly when the news was released ( 8am SGT). Prices hit a low of 1.256 as traders started buying SGD in expectations that the long-term economic health will drive SGD even stronger. Speculators similarly bought SGD in hope that the downtrend that has been in play since 8th August will continue, especially since early Monday gap higher failed to break the soft resistance of 1.259.

However, USD/SGD rallied strongly after the initial sell-off, with bears losing momentum within 5 mins of the news release. It seems that despite all the good news today, SGD still fell victim to concerns over China’s slowdown. MTI actually lowered export forecast for 2013, suggesting that exports will stay unchanged or rise 1% at best this year, compared to an earlier estimate of 2-4% growth. This seem to run afoul of MTI’s GDP forecast upgrade, but when we consider that analysts consensus placed full year GDP growth at high 2+% to begin with, it seems that the new 2.5-3.5% forecast did little to shift analyst’s original estimate as it continue to sit comfortably within the new band.

Therefore, we are once again back at the original fears of Singapore’s economic capitulation – falling in manufacturing sector which has been  the highest growth contributor historically. By MTI’s own assertions, it seems almost likely that the manufacturing sector will fall (MTI didn’t say specifically about manufacturing sector, but what can you realistically export other than manufactured goods?), and once again put Singapore’s growth at risk.
It seems that the concern is great that USD/SGD was able to break the 1.26 psychological round figure despite the incumbent downtrend and relatively flatness of USD (which weakened against AUD, NZD, CAD and JPY while strengthening against GBP, CHF and EUR from last Friday) However, from a technical perspective, bulls may have sterner tests ahead with last Friday’s Swing high and overhead Kumo providing strong resistance. Stochastic readings are also currently peeking into Overbought territory, which lends strength to the aforementioned resistances. A break of 1.262 will help to alleviate bearish pressure, and potentially allow bulls to push back within the 1.266 – 1.27 consolidation zone.

Daily Chart


Long term chart shows Stochastic readings hitting the previous troughs levels, suggesting that stoch readings may rebound soon. However, there isn’t any evidence of it happening just yet, and hence the bearish Kumo breakout that occurred last Thursday cannot be ruled out yet especially since Forward Kumo is showing a bearish Kumo Twist. Moving forward, it may be possible to see price moving back towards Senkou Span B which is currently flat above. If Stoch readings manage to peak then, with price unable to break back into the Kumo, twe may see a confirmation of Kumo Breakout and a return of bearish pressure may be possible.

Fundamentally wise, there isn’t anything new despite all that jazz with MTI’s upgrades and downgrades. GDP growth is still within expectations, Manufacturing Sector still remains a high risk factor. With Central Bank MAS unlikely to introduce anything earth shattering in its October’s meeting, we may actually see continued strong technical influences moving forward.

More Links:
GBP/USD – Rests on Support Level of 1.55
AUD/USD – Continues its Push back towards 0.93
EUR/USD – Eases Back towards Key 1.33 Level

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu