To Singapore, With What ? Time To Look At USDSGD

I have been in a state of nerves for the entire day, all thanks to a phone call from the Ministry of Communications last night.

It was all my son’s fault because the standing instructions were to divert all calls unless its someone we know. But he froze, like all good Singaporeans including me, when he heard MINISTRY.

Gosh, was it a fine ? some penalty ? I was freaking out and it turned out to be a SURVEY.

Great. What is To Singapore, With Love ? I thought it was the latest National Day theme song or something. How was I to know it was going to be a banned film which I have never heard of till last night.

I got scared. I asked her how she got my number, and why survey a film and this film in particular ? I have never had any dealings with the  Ministry of Communications. How did they get my name and number ? WHY ME ?

And how was I supposed to answer questions like these below.

On a scale of 1 to 5 (1 = strongly disagree to 5 = strongly agree)
1. Is the government leading the country in the right direction ?
2. Is our Prime Minister doing a good job ?
3. Has the government improved my life in anyway in the past 5 years ?

What if she sabotaged my model answers ? What do these questions have to do with the film which I have never heard of ?

It would be so easy to say the wrong thing ! which resulted in a sleepless night and perhaps more ahead with “Why Me ?” echoing in my raving thoughts.

And so I realised that USDSGD has hit strong resistance in the past week at 1.265.

Month to date for September, SGD has strengthened against most currency pairs except for the US, HK and China.

SGD BASKET

We would imagine the SGD weaker on the NEER band given that the USD, which is about 70% of the basket is up 1.14% against it.

Wrong. Because the other 30% of the basket has weakened much more ! The EUR, the JPY, MYR and the rest.

Thus the SGD is looking decent indeed according to this chart I obtained (without permission).  Note the uptick since Sept and we are very near the neutral middle of the band (0).

sgd neer

Taken from the MAS website.
“Singapore’s monetary policy has been centred on the management of the exchange rate since the early 1980s, with the primary objective of promoting medium term price stability as a sound basis for sustainable economic growth. ”

It seems to be working because our inflation is lower although I do not discount the fact that the rest of the world is facing disinflationary economies as well.

sgd cpiGraph : Singapore CPI YoY

I ran the correlations and found a small correlation between the CPI and the USDSGD as of last year.

Professional forecasters in the recent Macroeconomic Survey have revised their outlooks for the Singapore economy and inflation and are much less upbeat than June .  http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Surveys/Survey%20of%20Professional%20Forecasters/2014/Survey%20Writeup%20Sep2014%20Web.pdf

gdp surveycpi surveyYet the higher probability is that MAS will not be budging on their stance cum next month in their semi annual Monetary Policy statement (on the week of the 10th). There is good reason as well because Core CPI is holding above 2%.

And to complicate things, I am considering as a wild card, if there is a chance that MAS may even strengthen the SGD, perhaps in the meeting next April.

Why ?

Look at the GDP forecast above. Everything is down except for 1 industry – Finance and Insurance. That industry works well with a strong currency and we can just ditch the manufacturers and the rest because if they will still be complaining about labour costs no matter what exchange rate you give them.

Strengthening the SGD also works with the Fed rate hike cycle that markets are anticipating and should keep the currency strong even as the rest of the world weakens. That would give MAS an additional bullet to weaken in any future crises.

Of course these are just wild thoughts that will not be enough to prevent the USDSGD from breaking 1.27 in the near term, on the possibility of a hawkish FOMC this Thursday and short term speculative flows.

With the world divided into a rate hiking US vs the monetary easing of the rest, I realise we cannot sell the SGD (which is sort of pegged to the USD, by virtue of the NEER basket) against any other currency than the USD (and HKD) and perhaps CNH (because it is a managed peg).

No AUDSGD, No GBPSGD, No CADSGD for me ! (but may relook at SGDMYR on a possibly rate hike from Malaysia next month)

As for the outcome of the MPS next month ? It does not matter.

And that’s my contribution to Singaporeans reading this today.