Fundamental Analysis: Shares’ Slump Hits SGD

Fundamental Analysis: Shares’ Slump Hits SGD

The Singapore dollar has been volatile with overall losses today as markets continue to digest higher trade tension. The Monetary Authority of Singapore (MAS) also announced early this morning GMT that it would push transparency of its instruments for monetary policy. This has added somewhat to volatility for SGD by giving a degree of support.

USDSGD reached a trough in the morning GMT but has now recovered to about S$1.362, close to where it started the day. SGDJPY’s movements were similar, with this symbol currently trading around ¥80.80, near three-month lows. The euro though made a fairly large gain to S$1.526.

STI returns to month lows, but MAS confident

This morning’s session in Singapore featured a decline of nearly 1% for the FTSE Straits Times Index. Singapore’s benchmark for shares cut short yesterday’s incipient rally after the USA’s Trade Representative appeared to confirm higher tariffs on China to be introduced on Friday. Robert Lighthizer accused China of ‘reneging’ on its commitments made during ongoing talks between the two countries.

Singapore’s economy and currency are generally quite sensitive to prospects for growth around the world. Recent negativity on trade then has been a factor against SGD. On the other hand, the most recent economic data from Singapore has mostly been good. Nikkei PMI for April at 53.3 on Monday indicated bigger expansion among private companies. The MAS’ reserves also increased by about S$4 billion last month.

This morning’s announcement by the MAS drove some volatility for SGD but also provided some fundamental support. The Authority announced its intention to transfer S$45 billion from its own reserve to Singapore’s sovereign wealth fund. Traders have noted this as a sign of confidence from the MAS. If sufficient reserves are available, the Authority can manage potential fallout from a collapse in trade talks.

The MAS also expressed its intention to release more information on monetary operations, starting next year. The most important aspect of this is data on the Authority’s forex interventions. This will be published with a lag of six months from the beginning of 2020.

Sino-American disputes and shares in focus for SGD

News that the MAS intends to lift its veil of secrecy somewhat could continue to provide support to SGD. However, greater transparency does not in itself indicate any shift in the Authority’s policy.

Trade disputes and shares then are likely to remain the key drivers for the Singapore dollar over the next few days. More confirmation of new tariffs to come in on Friday would be a strong negative for SGD.

The rest of this week is fairly uneventful in Singaporean data, but traders should watch retail sales on Friday at 05.00 GMT. A repeat of March’s very poor figure of negative 1.5% could push SGD down further, temporarily at least.

Direction to be news-driven, but gains are possible

Leaving aside the latest drop in the chances of trade disputes being resolved, SGD’s fundamentals are fairly strong. A slight recovery against most currencies appears to be favorable over the next few days unless the news of tariffs becomes even worse.

Trade AUDSGD, EURSGD, GBPSGD and more with carries up to 0.9 points.

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