Maybank FX InSight - SGD: Surprise MAS Moves Lift The USD/SGD 28 Jan 2015

SGD: Surprise MAS Moves Lift The USD/SGD

§  MAS surprised during an unscheduled policy meeting with a cut in the policy slope of the SGD NEER, while keeping the policy stance of a “modest and gradual appreciation of the SGD NEER” intact. Other policy variables including the width of the band were left unchanged. Today’s policy move reflected the change in the inflationary environment expected in 2015, largely because of receding global oil prices. The MAS now expects headline and core inflation to come in -0.5-0.5% and 0.5-1.5%. §  Before policy announcement, we estimated that the slope of the SGD NEER was at 2.0% p.a. Though no details were revealed, we now estimate that the slope of the band is at 1.0% p.a. §  Given the policy announcement today and the concomitant move in the USD/SGD so far, we now revise our forecast for the USD/SGD higher in 2015. The pair is expected to come in at 1.3650 (previously 1.3550), 1.3550 (1.3400) and 1.3600 (1.3500) by end-1Q, -2Q and -3Q respectively before settling lower to 1.3350 (1.3200) by end 2015. Technically, we could see the pair remain supported in the interim, key levels to look out for are 1.3660 and 1.3790 (resistance) and 1.3460 and 1.3360 (support). §