FxWirePro: Can MAS’ status quo bring-in any stimulus in SGD? Take a glance at RV trades

The latest macroeconomic outlook from the Monetary Authority of Singapore (MAS) painted a more cautious growth picture. They expect growth this year to be slightly below the mid-point of the official 1.5-3.5% growth guidance or just below 2.5%. This is on the back of the slower global growth backdrop, sluggish trade, and the downturn in the global electronics sector. MAS expects the positive output gap to narrow and along with the policy tightening in 2018, inflationary pressures should remain in check. This is why MAS kept policy unchanged in April after tightening twice in 2018. 

Given the modest growth and inflation under control, we expect MAS to stay on hold in the October policy meeting as well. MAS has in fact lowered the core inflation forecast for 2019 to 1-2% from 1.5-2.5% previously. 

In terms of the SGD NEER valuation, we estimate it is still at the strong end of policy band even though USDSGD popped up a bit last week to the 1.3620 level. What this implies is that a lower USDSGD is more likely to be driven by a weaker USD or strength in other Asian currencies e.g. CNY or MYR rather than independent SGD appreciation. USDSGD has been rather stable since the start of the year, holding around the 1.34-1.37 range and this range is likely to hold for now. 

Buy 2M 25 delta EURSGD put vs sell 2M 25 delta USDSGD put. Courtesy: JPM & Commerzbank

Currency Strength Index: FxWirePro's hourly EUR spot index has shown -40 (which is bearish), while USD is flashing at 30 (mildly bullish) while articulating at 13:23 GMT. 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex