Why could SGD experience depreciation?

Singapore's core inflation decreased from 1.0% to 0.4% YoY basis which is the lowest since 2010.

Final revision of Q1 GDP stronger than projected at 2.6% versus consensus at 2.2% YoY basis.

Industrial production growth has been contracting further from -5.5% to -8.7% YoY basis in April which is the lowest rate of growth since February 2013.

IMF highlights the risks to Singapore's growth outlook as downward and the uncertain outlook could weigh on private consumption and investment.

As for external growth momentum, slower growth in Asia, particularly China, represents renewed risks to exports. China is Singapore's largest trading partner, representing 11.6% of total trade.

Slower growth in Asia will also restrain activity in a range of services industries through reduced tourism. The Services sector is the biggest sector of Singapore's economy and accounts for 70% of GDP.

It seems that SGD has started on a weak note in Q2. SGD has been an underperformer in May as the CPI inflation and industrial production data for April reinforce our view.

However, we project SGD to ensure the cushion to the downside risks in next weeks to come.