FX Daily: Our MAS call proves correct


No change to our view for USD/SGD to end the year at 1.37
Philip Wee14 Oct 2021
    Photo credit: Unsplash Photo


    Contrary to consensus, we were correct about the Monetary Authority of Singapore increasing the slope of the SGD NEER policy band this morning. The centre and the width of the band were left unchanged. The decision reflected confidence in the resilience of the Singapore economy and was considered a timely response to pre-empt global inflationary pressures. MAS expected core inflation to increase to 1-2% in 2022 and hold around 2% in the medium-term. Advanced GDP growth estimate expanded 0.8% QoQ sa in 3Q21 from -1.4% in 2Q. MAS expects growth to remain above trend in the quarters ahead with output returning to around its potential next year. The fall in USD/SGD below 1.35 this morning was understandable given the out-of-consensus decision. However, our view has not changed for USD/SGD to end the year higher at 1.37 on a stronger USD globally from the Fed playing catch up to address inflation. 

    DXY was supported at 94.0 after it pulled back from a new year’s high of 94.5 on Tuesday. S&P 500 and Nasdaq Composite increased 0.3% and 0.7% respectively while US 10-year treasury yield retreated a second day to 1.537% from 1.577%.Investors were relieved that the Congress approved a USD480bn increase the federal debt ceiling to December and averted a possible debt default on 18 October. However, investors are not out of the woods yet. The three major stock indices have yet to overcome their 100-day moving averages and the VIX volatility index held above its support at 18. Labour supply shortages, supply chain worries, higher oil prices and inflation worries are likely to find their way into the third quarter earnings season.

    There is no change to our view for the US 10-year bond yield to end the year higher at 1.80%.Although the market brushed aside the higher-than-expected US CPI reading for September (5.4% YoY actual vs 5.3% consensus), inflation fears have not gone away. US PPI inflation today is expected to surge to 8.7% YoY in September from 8.3% in August. As expected, the FOMC minutes reaffirmed that the Fed’s intention to taper asset purchases from November 2021 to July 2022. More so if today’s US initial jobless claims fall a second week to 320k for the week ended 9 October from 326k the previous week. There is still scope for the DXY to push higher towards 96 in the months ahead. 







    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]



    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

     
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.