USD/SGD eased slightly yesterday, easing bias by MAS likely to restrain the downside: Commerzbank

The USD/SGD currency pair eased back slightly yesterday to the 1.3800 level but an easing bias by the Monetary Authority of Singapore (MAS) should also restrain the downside, according to the latest research report from Commerzbank.

September manufacturing PMI slid further to a three year low of 49.5 from 49.9 in August. The electronics sector PMI also slipped further into contraction to 49.1 from 49.4 previously. There are still few signs of stabilization as yet and points to downside risks for Q3 GDP.

Another q/q GDP contraction in Q3 can been seen from -3.3 percent q/q annualized in Q2. This will imply a technical recession and the first since 2008. The government has already revised down this year’s growth projection to 0-1 percent and it is likely to be at the lower end of the range after having just posted 0.6 percent in H1 2019, the report added.

In terms of implications for monetary policy, the risks are rising of some form of easing from MAS. The next policy meeting is likely to be held on October 11 which usually coincides with the advance Q3 GDP estimate.

At the minimum, MAS can be expected to shift to neutral for the SGD NEER (nominal effective exchange rate) from the current stance of an appreciation bias. MAS tightened policy in both meetings in 2018.

However, it has already stated in April that it doesn’t expect inflationary pressures to accelerate due to slowing growth, the global uncertainties, and the tightening in 2018.

"Going into 2020, we see MAS shifting to an easing stance which implies allowing the SGD NEER to depreciate," Commerzbank further commented in the report.