Forex Investment and Currency Trading

USD/SGD

Sport 1.36

3 month forecast - 1.35

6 month forecast - 1.34

12 month forecast - 1.32

The SGD was essentially steady in June after appreciating sharply earlier in the year after the Monetary Authority of Singapore’s (MAS) re-fixed the central rate within the policy band. Subsequently, the MAS reiterated that it would maintain its three-year-old policy of allowing a “modest and gradual” appreciation against a trade-weighted basket of foreign currencies. The appreciation is likely to help fight imported inflation. Market forecasts the currency to strengthen steadily over the course of the next 12 months.

Inflation soars: The CPI climbed 6.6% y/y in 1Q, the sharpest rise in over 25 years. In addition to energy and food prices, the tight labor market has begun to push up wage costs, but the continuing inflow of foreign workers and the rising labor participation rate will help contain wage demands. The MAS has revised up its inflation forecast to 5.0-6.0% for 2008 from 4.5-5.5%. This will tend to keep monetary policy steady.

Domestic demand more resilient than expected: The economy has held up well despite slowing U.S. demand and volatile credit markets. Retail sales rose 7.5% y/y in April. In particular, motor vehicle sales reversed the declines since October last year, posting a 7.1% increase in April. GDP gained 7.2% y/y in 1Q after rising 5.4% y/y in 4Q. The domestic economy will continue to be bolstered y strong employment growth, rising real wages and stable property prices.

Export sector weakens: By contrast to the domestic sector, non-oil domestic exports fell 9.8% m/m in May from April in seasonally adjusted terms. This is the weakest performance in two months. Exports to the U.S. — Singapore’s single largest export market — fell 22.3% from a year earlier after declining 16.9% in April. Since exports are such an important component of Singapore’s growth, it underscores the nation’s exposure to slower global demand.