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Market Analysis

Fundamental Analysis: SGD Rising on Trade Talk and Shares

February 19, 2019
BY Michael Stark

The Singapore dollar has recovered since yesterday’s open from losses at the end of last week. Among the major factors behind this are trade talks, gains for the STI and better data from Singapore yesterday.

SGD-JPY has made strong gains today to ¥81.60 at the time of writing. Meanwhile EUR-SGD is testing 18-month lows around S$1.531. Only against the US dollar among majors has SGD struggled to make headway this week, with USD-SGD holding around S$1.356.

Some data-driven losses, but shares and tariffs in main view

Last week’s data was very negative for the Singapore dollar. December’s retail sales coming in at -3.4% against the forecast of 1.5% made traders reconsider buying SGD. Some profit-taking occurred after the currency’s long rally. The biggest data release was GDP growth for Q4, released at midnight GMT on Friday. A decline of half a percent to 1.9% gave fuel to losses for the Singapore dollar.

The return of positivity this week is partly because of yesterday’s data. Despite slight declines in non-oil exports, Singapore’s trade balance increased significantly to $2.41B, beating the forecast very slightly.

Adding to SGD’s tailwinds this week was the significantly higher open for the Straits Times Index yesterday. STI at 3,260 is the highest level since September 2018, driving demand for Singapore dollars to purchase Singaporean shares.

On the other hand, the full impact from Monday’s Singapore Budget remains as yet unclear despite a wave of positivity in the stock market. Finance Minister Heng Swee Keat announced yesterday an extra S$1 billion to support existing and new initiatives for enhancing the global competitiveness of Singaporean companies.

One of the noteworthy factors supporting the Singapore dollar recently is the ongoing trade talks between the USA and China. It looks increasingly unlikely that these will collapse completely, and indeed the key figures were unusually positive on Friday in Beijing.

Eyes on trade talks and shares this week

The most important event generally in currency markets this week is the resumption of trade talks in Washington. Both the USA and China appear to be keen to avoid any more tariffs next month. Positivity on the outcome appears to be holding for now after some progress in Beijing last week. Nonetheless, negative reports would be a factor against SGD this week.

The overall ‘risk-on’ mood in the Asian sessions so far this week and gains for global indices on the whole seem to be set to continue. In this case, the expected upward movement for the STI would give support to the Singapore dollar.

More gains possible for SGD, but watch events in Washington

In general, fundamentals for the Singapore dollar are likely to remain positive this week unless seriously bad news comes from the trade talks. FX News’ analysts expect more gains for SGD against the euro and yen. However, a continuing sideways movement is more favorable against the dollar.

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