Singapore Dollar: 1-3 Month Outlook

SGD was in the lower half of the AXJ performance rankings in July. We expect this trend to continue in the next 1-3 months.Domestic data point toward subdued growth in Q2. The preliminary estimate of Q2 GDP came in at 1.7%y/y (from 2.8% in Q1). External growth momentum remains lacklustre, with non-oil domestic export growth falling by 2.4%m/m (consensus: -1.2%m/m). 

Meantime, CPI inflation was soft in June - though the core reading inched up from 0.1%y/y to 0.2%y/y and headline CPI inflation inched up from -0.4%y/y to -0.3%y/y.

"There is little wiggle room given MAS's forecast band of -0.5% - 0.5%y/y for both annual core and headline inflation. MAS's 2015 GDP growth forecast of 2-4% appears a little too optimistic", notes RBC Capital Markets.


RBC Capital Markets suspects a downside risks to MAS's inflation and growth forecasts.


SME busines confidence is at the lowest level since 2013 amid an uncompetitive exchange rate and waning external growth momentum. MAS decided to maintain its policy of a modest and gradual appreciation of the S$NEER policy band in April with no change to the slope and width of the policy band, and the level at which it is centred. But RBC Capital Markets assumes due to a significant risk the MAS will be forced to ease monetary policy, potentially before the next scheduled Monetary Policy Statement in October.