Goldman: Still Our Favored Currency In NJA

Goldman Sachs note that “the MAS was amongst the first Asian central banks to normalize policy, which so far has increased the slope of the SGD NEER by a cumulative 1.50%/annum and re-centering the mid-point of the SGD NEER twice. But given the high June inflation prints (which came after July MAS inter-meeting move) we think the MAS will increase the slope of the SGD NEER again by another 50bp to 2.0%/annum at the October meeting. We have fielded several questions in our recent client meetings of whether the MAS will have to tighten more aggressively (i.e. slope increase and re-centering). While more aggressive tightening is plausible, it is not our base case. We expect headline inflation will peak around Q3 this year. We think food price inflation (21% of basket) should ease ahead as global food prices plateau, oil prices have already eased to below USD 100/bbl, which is likely to ease transportation inflation (17% of basket) and the substantial increase of housing supply in 2023 may ease rental inflation (22% of basket) ahead. The risk to our view is to the hawkish side, particularly if the labor market does not cool. The vacancy-to-unemployment ratio is now at 2.4x, which is the highest level since 1997. We estimate that the SGD is around 1.3% above the mid-point of the SGD NEER band (width is +/-2%). Given the risk of further tightening ahead, we continue to like the SGD and maintain our long SGD/TWD trade recommendation.”