Singapore eases monetary policy

Yesterday, the Monetary Authority of Singapore (MAS) surprised the market by changing its stance towards its currency from 'modest and gradual appreciation' to setting 'the rate of appreciation of the S$NEER policy band at zero percent'.

Yesterday, the Monetary Authority of Singapore (MAS) surprised the market by changing its stance towards its currency from 'modest and gradual appreciation' to setting 'the rate of appreciation of the S$NEER policy band at zero percent'.

In other words, it will stop the Singapore dollar from further appreciation beyond a certain level against a basket of currencies of its main trading partners.

Singapore uses the exchange rate, instead of interest rates, to manage its monetary policy. This move, although not expected by the market, does make sense in today’s low-inflation environment. A weaker SGD against its major trading partners will boost domestic exports and improve the country’s overall competitiveness. To domestic consumers, it means imported products will become more expensive, and it will probably dampen the enthusiasm for overseas trips. The Singapore dollar dropped 1% against USD to 1.3630 yesterday.

Below is a chart showing that the S$NEER has been appreciating since October 2012, when the MAS started to adopt a 'modest and gradual appreciation' stance towards SGD. Now, however, the game is going to change.

 
Source: mas.gov.sg

Equities
China’s Q1 GDP will be released tomorrow, with GDP estimated to grow at 6.7%. I believe the data will be in line with expectations given the recovery of the property market and related activities over the last three months.

The better-than-expected trade balance data is a sign of economic stabilisation. If the figure disappoints, it may not necessarily be bad news for investors, as hopes of further stimulus measures will eventually underpin market sentiment.

In addition, market sentiment has improved as the US Federal Reserve decided to remain cautious on rate hikes this year. The recently adopted policy loosening control on margin finance has also encouraged more capital to flow into the equity market.

Commodities
Crude oil slid for a third consecutive day, as rising inventories continued to dampen the bulls. Traders remain cautious before the upcoming freeze meeting. Gold fell to the $1,225 level this morning as improved risk appetite reduced the demand for safe-haven assets.

USD/SGD
 
Key Technical levels to watch:

  • Price has broken above 20 SMA with strong momentum, indicating a possible trend reversal
  • Immediate resistance level : 1.3680
  • Immediate support level: 1.3450

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