USD/SGD Bounces Off 200-Day MA, But Still Upside for SGD NEER

Today's downside Q2 GDP revision, which put growth in negative territory for the quarter (-0.20% versus +0.2% expected) has helped stall the SGD FX rally. The pair was last at 1.3715/20, around +0.20% for the session so far. USD/SGD did test the 200 day MA overnight, which comes in around 1.3680, but we didn't see a meaningful break below this level. A firmer USD against the majors has also helped bias USD/SGD higher today.

• The MAS noted the tightening stance remains an appropriate one from a policy standpoint, although much uncertainty rests on the outlook. The central bank expects core inflation to rise a bit more in Q3.
• This will be critical to gauge risks around further MAS tightening at the October meeting.
• Today's GDP result should reduce the risk of another policy shift ahead of October's outcome. There has already been a number of shifts ‘out of cycle’ this year.
• Growth is expected to rebound modestly in Q3/Q4, with the Singapore authorities not expecting the economy to dip into recession.
• The SGD NEER has fallen today, according to Goldman Sachs estimates, but is likely to continue to trend higher over the multi-week horizon. The current level of the NEER is still around -0.70% away from the topside of the band.
• A sharp reversal in NEER is likely to require the market to price in MAS easing risks, but that is arguably premature at this stage of the cycle.