Andrew Robinson, Market Analyst, Saxo Capital Markets
SINGAPORE, Oct. 13, 2011 /PRNewswire-Asia/ -- The Monetary
Authority of Singapore conducts its semi-annual review of monetary
policy on Friday October 14th amid a gloomy external outlook and a
stubbornly-high inflation rate. This suggests a finely-balanced
argument for the next policy step and we take a look at the
possible scenarios/responses and likely market
reactions.
(Logo: http://www.prnasia.com/sa/2010/01/18/20100118801199.jpg )
Background
On the economic front, the second quarter saw Singapore posting its
first quarter-on-quarter negative growth since Q3 2010 as export
markets in Europe and the US slowed. Following the -6.5% recorded
in Q2, current surveys suggest that growth will rebound modestly in
Q3 with median forecasts of +0.8% q/q growth (though the sample
ranges from -7.1% to +7.7%.) though it would be easy for any
undershoot to drag Singapore into a technical
recession.
On the one hand, industrial production has shown some improvement
on an annualized basis since hitting a cycle bottom in May, but PMI
data, mirroring what we are seeing elsewhere in the globe, has been
below the 50 threshold since July, and trending lower since April.
Unemployment remains low, holding below 2.3% since end-2009 and
registering 2.1% in Q2, a level that some feel is close to
full-employment for the island state.
Inflation, the major issue for most Asian economies these past 2
years, remains stubbornly high and hit a cycle high of 5.7% y/y in
August. The MAS's core inflation, which excludes housing and
transportation came in at 2.2% in Q2 and is expected to hold in the
2-3% range for the full year. The big debate is whether this is too
high to prevent an MAS easing or can we regard it as still a
temporary phenomenon?
Scenarios
1. No Change (10% chance) -- maintains the SGD NEER trading
band
at current levels, no re-centering and keeps the
slow/gradual
appreciation of SGD (currently seen at +3% per annum)
policy
in place.
2. Re-centre of band (10% chance) -- brings the centre of
the
SGD NEER trading band to current levels but maintains
the
current SGD appreciation slope.
3. Slower Appreciation Path (30% chance) -- Reduce the slope
of
appreciation from the current 3% with no re-centering of
the
trading band
4. Neutral Stance (50% chance) -- Reduce slope of appreciation
to
zero, possibly even combined with a re-centering of the SGD
NEER
trading band.
Implications for the SGD
While the SGD NEER measures the SGD's value against a basket of
currencies, for illustration purposes we will adopt a USD-neutral
stance and plot suggested reactions in USD/SGD.
(Photo: http://www.prnasia.com/sa/2011/10/13/20111013132325304345.html )
Scenario 1: Market's least likely outcome will produce a kneejerk
firmer SGD but 200-day MA just below 1.25 is expected to limit
losses.
Scenario 2: Another kneejerk reaction higher for the SGD but not to
the same extent as scenario 1 and likely confined to the 50%
Fibonacci retracement of last large up-move, currently at
1.2600.
Scenario 3: A less-dovish outcome than is currently expected so SGD
weakness will be limited at first but accelerating after a period
of consolidation.
Scenario 4: Preferred outcome, SGD to trade on the weak side back
to the recent high at 1.32.
Disclaimer:
Saxo Capital Markets Pte. Ltd. ("Saxo Capital Markets") is licensed
as a Capital Market Services provider and an Exempt Financial
Advisor, and is supervised by the Monetary Authority of
Singapore.
The author(s) and Saxo Capital Markets are not responsible for any
loss arising from any investment based on any recommendation,
forecast or any other information contained herein. The contents of
this publication should not be construed as an express or implied
promise, guarantee or implication by Saxo Capital Markets that
clients will profit from the strategies herein or that losses in
connection therewith can or will be limited. Trades in accordance
with the recommendations in an analysis, especially in leveraged
investments such as foreign exchange trading and investment in
derivatives, can be very speculative and may result in losses as
well as profits, in particular if the conditions mentioned in the
analysis do not occur as anticipated.
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About Saxo Capital Markets
Saxo Capital Markets Pte Ltd is a wholly-owned subsidiary of Saxo
Bank A/S, the online trading and investment specialist. It serves
as the Asia Pacific headquarters and holds a Capital Markets
Services license from the Monetary Authority of Singapore. Saxo
Capital Markets also holds a Commodity Broker licence from The
International Enterprise Singapore.
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Tokyo, Athens, Zurich, Prague and Paris. Saxo also operates
representative offices in Sydney and Moscow.
Saxo's position as an established FX house and its leading role in
the foreign exchange market has been recognised by the industry's
leading reviews. In 2011, the Saxo Bank Group picked up six awards
at the Euromoney annual FX survey for the following categories:
Best Improved Overall Market Share by Volume ($10bn - $25bn) and
($5bn - $10bn), Best Speed of Execution, Best Research and
Analytics, Best Effective Risk Management and Execution Strategies
and Best Integrated Workflow and Compliance Solutions. Saxo Bank
was also named "Best Forex Broker in Northern Europe" and "Best
White Label Solution Provider" in the World Finance Foreign
Exchange Awards 2011.
For more information, please visit
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About Andrew Robinson, Market Analyst
Andrew Robinson has close to 30 years of experience in the
financial markets and worked in key financial centers in London,
Europe and Singapore. His expertise lies in FX, short-term interest
rate products and precious metals.
Andrew joined Saxo Capital Markets in 2008 and currently writes a
daily market commentary for the Asian FX trading session. He also
contributes regularly to the Saxo Capital Markets' blog
(http://saxocapital.blogspot.com) and contributes articles with an
Asia perspective to regional print media.
Andrew is a regular contributor on CNBC, Bloomberg and Thomson
Reuters.
Media contacts:
Saxo Capital Markets Pte Ltd
Celeste Fong
Tel: +65 6303-7713
Email: [email protected]
SOURCE: Saxo Capital Markets Pte Ltd