Singaporean dollar likely to remain vulnerable amidst soaring U.S. inflation expectations

Singapore’s CPI-All Items inflation accelerated from -0.2 percent in September to -0.1 percent year-on-year in October. In the meantime, the core inflation, which strips the costs of accommodation and private road transport rose to 1.1 percent year-on-year in October, owing to a smaller fall in utility prices, which was slightly lower than the market estimate of a 1.2 percent rise.

Singapore’s central bank, the Monetary Authority of Singapore (MAS) stated yesterday that “CPI-All Items inflation has troughed and is projected to pick up to 0.5–1.5% next year, from around -0.5% in 2016”. In the meantime, the central bank anticipates core inflation to average around 1 percent this year before accelerating to 1 percent to 2 percent in 2017 as energy-related components start to positively contribute to inflation and as temporary disinflationary impacts from budgetary measures wane, noted a statement released yesterday.

Subdued external demand and U.S. President-elect Donald Trump’s protectionist trade policy might be a drag on Singapore’s exports and economic growth, according to Scotiabank. The central bank had kept its policy on hold in October, intending to preserve its policy space.

“The monetary authority is likely to ease its S$NEER policy band through re-centering it downwards by April 2017. The S$NEER is now residing in the middle of the lower half of the policy band according to our estimate”, said Scotiabank.

Meanwhile, the Singaporean dollar is likely to stay vulnerable to a bear-steepening UST yield curve in the midst of sharply rising U.S. inflation expectations emerging from Trump’s pro-growth stance and solid U.S. economic data, stated Scotiabank. The FOMC November meeting minutes that were released yesterday indicated that the U.S. Fed top officials believe that the central bank should hike the benchmark interest rates soon.

“We stay with our long USD position against a basket of KRW, MYR and SGD with equal weightings and expect USD/SGD to reach 1.45 in the weeks ahead. Meanwhile, front-end SGD IRS is anticipated to rise further in tandem with a weakening SGD”, added Scotiabank.