USD/SGD: Here’s Why Singapore Dollar Could Spike to 1.3388

The USD/SGD price dropped sharply after the relatively strong Singapore industrial production numbers. It fell to 1.3460, which was substantially lower than this week’s high of 1.3496. 

Singapore strong economic numbers

Singapore has done relatively well in the past few months amid the coronavirus pandemic. The country has been helped by the strong demand for most of its goods like medical equipment and electronics. Its close proximity to China at a time of rising tensions in Hong Kong has also helped. 

This is evidenced by the recent economic numbers from the country. Last week, data by the statistics agency showed that the unemployment rate was at 3.3%, which is a good number considering that other countries have a higher rate. For example, in China, the unemployment rate has risen to 5%, while in the United States, it is at 6.1%.

Further trade numbers revealed that the country’s non-oil exports increased from 6.90% in January to 8.2% in February. This was a better number than the median estimate of a 1% drop. On an annualized basis, the exports increased by 4.20%, while the trade surplus was at more than S$4.9 billion.

And on Friday, the USD/SGD reacted to the latest industrial production numbers. In total, the country’s industrial production increased by 1.6% in February, better than the expected drop of 2.9%. This led to an annualized increase of 16.4%. This was slightly below the expected 16.5%. Electronics rose by 30.2%, while biomedical, precision, and chemicals increased by 23.9%, 15%, and 2.5%, respectively.

In general, analysts expect that the Singapore economy will keep doing well as the global demand for its products rises. Also, because of the Hong Kong national security law, more companies are expected to move to the country.

Singapore inflation problem

However, the biggest challenge for the Singapore dollar is that inflation remains significantly low. Indeed, this is the main reason why the Singapore dollar is hovering near its lowest level in four months. Recent data revealed that consumer inflation rose from 0.2% in January to 0.7% in February. 

This is unlike what is happening in other emerging markets, where the high oil prices have pushed inflation substantially higher. Indeed, these countries’ central banks like in Brazil and Tukey have been forced to hike rates. 

Therefore, the Monetary Authority of Singapore (MAS) will likely do what it did in its October statement. It left interest rates unchanged and pointed to more support. Indeed, the bank will likely welcome the recent SGD weakness because it helps its exporters. 

Analysts are also watching the performance of the US bond market, where the yield of the ten-year is hovering near the highest level in more than a year.

USD/SGD technical forecast

The three-hour chart shows that the USD/SGD pair has dropped from this week’s high of 1.3496 to 1.3460. The price has also moved below the 25-day and 15-day weighted moving averages, while the awesome oscillator is still above the neutral level. The pair has also returned to the horizontal channel that has been forming in the past few weeks. 

Therefore, there is a possibility that the pair will keep falling as bears target the lower side of this channel at 1.3388. However, another climb above the weekly high at 1.3496 will invalidate this trend.