Singapore dollar forwards drop as traders see MAS policy on hold

[SINGAPORE] The currency market has shifted to signal expectations the Monetary Authority of Singapore will refrain from easing next month, with a measure of the local dollar's potential direction sliding to a four-year low.

Six-month forwards stumbled to minus 15.64 points on Thursday, the least since July 2012, data compiled by Bloomberg show. The rate touched 32.23 points on June 28, days after the UK vote to exit the European Union caused a global financial rout.

Futures contracts show the likelihood for the US Federal Reserve to raise interest rates at the Sept 20-21 meeting has gone down to 22 per cent after recent disappointing US economic data.

"The market is not looking at Singapore dollar depreciation at this point because of what's happening in the US," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore.

"Singapore has weak fundamentals but we don't really see it deteriorating. We are not going into a recession."

The MAS's trade-weighted measure of the currency has fallen to the least in almost three months as of Aug 26, retreating from a record set on Aug 5.

The authority, which guides the local dollar against an undisclosed basket of Singapore's trade partners and competitors, surprised the markets in April by moving to a neutral policy of zero per cent appreciation.

Singapore dollar six-month forward points - which are tied to interest-rate differentials - had been above zero since Nov 2014 as the Federal Reserve was seen moving toward tighter monetary policy.

Ravi Menon, managing director of MAS, said Tuesday the current policy stance remains appropriate. Singapore's gross domestic product expanded an annualized 0.3 per cent last quarter from the previous three months, after a 0.1 per cent increase in the first quarter.

Economists predict a full-year growth rate of 1.8 per cent, which would be the slowest pace since 2009, according to a Bloomberg survey.

BLOOMBERG