Singapore dollar trades in tight rage against the greenback

The local currency traded between 1.22 and 1.2225 following MAS’ surprise move.

IG Markets Singapore said:

After the big move early on Friday as MAS maintained an unchanged stance towards the SGD, we saw relatively little change for the rest of the day.

The surprise move from the central bank, with many analysts expecting at least a decrease in the slope of the permitted trading band, shows that the balance between encouraging growth and inflationary pressure is the difficult element the MAS is trying to find.

Inflationary concerns seem to be winning out at the moment, with increasing food prices perhaps being targeted by the move to try and keep a stronger SGD.

Against the greenback we kept a tight range after the announcement, trading between 1.22 and 1.2225. So far this morning, as general USD strength has been seen around the markets, we have just crept above 1.2230.

Singapore retail sales out later today, another chance for some volatility if the figures differ from the +1.5% month on month rise expected.

DBS Group Research meanwhile noted:

One thing is clear. At this point, there is no expectation for the collective cooperation to support the world economy at the G20 Summit.

Emerging economies, led by China and Brazil, are worried most about policies in the US and Eurozone. In the former, it is QE3 leading to another currency war. In the latter, it is the slow responses to the Eurozone crisis that make a bad problem worse.

For now, we don’t see enough consensus from G20 countries to weaken the US dollar. On this count, it is best to pay attention to the Chinese yuan.

As of last Friday, the onshore CNY, the offshore CNH, and the 1-year CNY non-deliverable forward rates have all posted year-to-date gains against the US dollar. There is only one problem. The official parity fixing CNY rate is still weaker than end-2011 levels.