AUD/SGD – Rising CPI limits MAS Scope to Ease

Singapore inflation rate grew at a faster pace than expected. Feb Y/Y inflation came in at 4.9%, much higher than the 4.1% forecast and more than 33% increase from previous month’s 3.6%. The Monetary Authority of Singapore said that the hike is merely a “temporary pickup” which has been anticipated. Increase in prices are attributed to rising food costs due to the Chinese New Year celebrations, and the rising cost to own a car. MAS expects core inflation to average between 2-3%, and all other items to be between 3.5-4.5%. With a higher than expected inflation rate even by MAS’s standards, the likelihood of Central Bank action weaken SGD decreases, as Singapore is a net importer of almost all consumer products.

Hourly Chart

This data release resulted in SGD strengthening, extending the gains that has been seen during early Asian trading. AUD/SGD bears are benefactors to the SGD strength, though price is unable to have significant breakthrough due to AUD/USD strength post Cyprus resolution. Price remains supported around 1.30 and short-term price has recovered significantly, re-testing the 1.302 support once again. Rising trendline has also provided support and suggest that current uptrend since 19th Mar is still at play. Stochastic readings also show that a bullish cycle is beginning/has begun and that will help bulls to push above the 1.302 again.

Daily Chart

Long term chart is less bullish though. 1.30 round number has been acting as a ceiling back in Mid March, but beyond that, there is zero relevance with regards to price actions for the past few months. Also, the bullish momentum from March’s recovery has slowed down significantly. This does not negate overall bullishness though, just that a continuation of bullish momentum may only be confirmed after price push beyond the recent swing high. Stochastic readings are less encourgaing for the bulls with readings heading lower. Current readings are still within the Overbought region, and it is likely that readings may fall below 80.0 should price break the Jan ceiling, potentially creating a bearish setup in the future.

Fundamentally it is interesting to see the outcome between Aussie and SGD. Both currencies share a lot of common traits – AAA Sovereign rating, better than average economic growth during the global financial crisis, plateauing growth forecast etc. The only major difference is the interest differentials between SGD and AUD, which will allow the Aussie to remain supported despite worsening outlook. SGD on the other hand has little to support itself should Singapore’s economy go down. This major difference will play a huge part in AUD/SGD direction especially as both Central Banks look poised to keep their hands away from artificially weakening their currencies. Overnight Index Swaps are now pricing in a mere 10% chance of a 25 bps cut in April meeting.

More Links:
GBP/USD – Moves to Four Week High Around 1.5250
AUD/USD – Consolidating Well Around 1.0450
EUR/USD – Placing Pressure on the Key 1.30 Level

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