USD/SGD – Market Reaction Highlighting MAS Expected Inactivity

Hourly Chart

The Singapore Government introduced fresh new measures to curb the rising housing costs this morning. The newest restrictions require foreigners who have received Permanent Residency status to wait for 3 years before they are allowed to purchase public housing properties. Tenures for new loans have also been reduced, making financing purchases that much harder. It is interesting to note that SGD actually strengthened following the announcement instead of weakening. In theory, a tightening of housing market would allow the Central Bank to weaken SGD in order to facilitate higher economic growth. As Singapore is a net exporting country, a weaker SGD will certainly be beneficial to the economy similar to Japan.

By strengthening instead of weakening, it seems that market is believing that Central Bank MAS will not do anything to push SGD lower. Instead, the market focused on how the tightening measures will reduce liquidity of SGD lending, resulting in a stronger SGD. The conviction of this sentiment actually increase further when we consider that Singapore stocks traded lower during the time period, which would have been bearish for the SGD. By pushing USD/SGD lower instead, market has showed us that their belief of MAS not doing anything is extremely strong, and this should be something for us to remember as October MAS meeting draws nearer.

From a technical perspective, the decline has broken the ascending Channel that represents the rally of USD/SGD this week, and opens up the possibility of a Double Top scenario. However, prices managed to find support from the Kumo beneath, sending price towards Channel Bottom right now. With Stochastic readings pointing higher with signal line crossed, it seems that a weak bullish cycle may emerge from here. Even if prices does not enter the rising Channel, price may still be bullish with Kumo ahead most likely able to keep prices afloat above 1.283.

There are good reasons why USD/SGD remains higher. Fundamentally, the Syrian situation is drawing out risk aversion across the globe, and SGD as an emerging market currency (higher risk) would naturally be weaker by virtue of risk flows. Furthermore, USD is slated to strengthen on a longer term basis with QE expected to end in 2014 with the 1st cut happening in the next 2-3 months. As such, it is not surprising to see USD/SGD pushing back higher once again despite earlier setback.

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