USDSGD, Budget and All

Friends have been asking me where I think USDSGD is heading.

Not satisfied with my “No Where” answer, I had to do the gun to my head simulation and being the recalcitrant that I am, I said UP which is consistent with my radical calls for SGD in 2014 that I published last month.

In 11 days, we will have the Singapore budget and the goodie bag is looking plump.

450,000 Singaporeans to benefit from their pioneer generation status. And today we have the news that MAS will exempt loans for home bought before Jun 29 2013 from the TDSR (Total Debt Servicing Ratio) of 60%, subject to certain qualifiers.

They are listening and they are giving and elections are not even due…. yet.

If we stare at this long and hard like I did last month, I still think the country is going back to school and patching up the little cracks in the battlements. The emphasis on rampant and prolific growth has waned as social welfare, home affordability and support for small businesses take over.

Headlines these days are less aggressive, lacking the competitive propaganda of the past for Singapore to excel and make their global footprint. And I am not sure if I am the only one who noticed that there is no mention of any population stats so far this year.

Someone suggested that this could point to early elections next year, coinciding with the 50th anniversary of the founding of Singapore which sounds plausible enough given that the pioneer scheme is not set to kick in as yet.

Everything has slowed to a drift even for the currency. For all the global volatility, the SGD NEER basket has been pretty tame for the year so far, allowing our developed Asian manufacturing rival, namely Taiwan, to get a leg up on us with a weaker currency.

USD -0.18%
EUR -0.08%
MYR -1.36%
IDR 0.09%
JPY 2.78%
HKD 0.13%
THB 0.62%
TWD -1.13%
KRW -1.79%
CNY 0.02%
AUD 0.42%
INR 0.15%
PHP -1.02%
GBP -0.14%
CHF 0.39%

I am starting to believe that trading the SGD will not be about charts or economic fundamentals this year or next. Let us cross examine the intrinsic and extrinsic forces in the market.

Demand for SGD will inevitably ease going ahead. The Indonesian elections are now touted to be a boost for the currency which would reverse fund flows even as those Orchard road apartments stay vacant and the former Serangoon Gardens bakery lies empty for the past 2 years because there is no tenant at 20k a month.

Trade flows and investments will ease off as well as we move into economic drift mode.

Inflation is unlikely to be a problem except for wage inflation and we can see even mee rebus sellers are giving up on their ladle.

The main problem would be managing the housing market’s landing which would be tricky because either way, people will complain. If prices continue to soar, folks would bitch about the unaffordability whilst if prices plunged, folks would blame the government for letting the prices go out of control leading to the crash and of course, the people affected by negative home equity would blame everything they can lay blame on.

Navigating the interest rates which are still near zero into this economic environment will be a challenge and I suspect we cannot live with 6M SOR rate at 0.27% forever. From the hints we have been getting in the various speeches over the past 3 months, the central bank is likely to be tolerant of higher rates once the precarious housing situation settles as the public raise alarm over the sudden collapse in COV (cash over valuations) for HDB flats.

Because there is only 1 thing the Singapore public has not complained about for some time now. That is their mortgage rates.

Another little detail is that the SGD dollar has seen increasing global use as a funding currency in carry trades primarily because of interest rate differentials against Singapore’s very, very low rates.

I see my higher USDSGD theory supported along with the evil twin of higher rates.

Looking at the MAS SGD Neer index, we note a nice peak.

sgd neer index

We are swinging into a new age, I observe, and it is time to cast aside old assumptions and expectations that the SGD strength is a guarantee just as we would like to believe that we will never see 2% deposit rates again. Sacrifices have to be made to meet the challenges of the future and for us to rediscover our roots as a saving society in our old age and pray for pioneer goodie bags when our time comes.