A glimpse on why SGD still under-stress from its currency depreciation

The markets are estimating the MAS to ease policy in October despite the fact that Singapore's growth slowdown is structural and has had implications for different assets in the past few months, with short SGD positions having been built up in recent months. Additionally, media reports suggest a growing consensus among analysts that the MAS will deliver some form of easing to accommodate SGD weakness.

Given the positioning, this raises the question of whether we would see a USDSGD pullback akin to the 5% retracement around the April policy meeting if the MAS keeps policy unchanged in October. We think not.

International traders in Singapore may need to break their head for its currency depreciation due to a few differences in the macroeconomic environment now compared with April:

• Although Fed has deferred rate decision, the lift-off is pretty much on the table and getting closer, this will have positive impact on dollar's strength.
   
• The EM slowdown led by China is deepening, CNY uncertainty is higher.
   
• Crude, bullion and commodity prices are lower.