FX | Economy
FX Focus - AUDSGD –Two Of The Most Resilient Currencies
Posted on| Forecast | Spot | 0 - 3m | 6 - 12m | Long-term |
|---|---|---|---|---|
| AUDSGD | 0.8855 | 0.8645 | 0.8770 | 0.9880 |
*Forecasts as of April 2024.
- Year-to-date, SGD has weakened ~1.5% against USD while AUD has lost ~3.8%. US dollar’s recent strength has played a large part in the decline but the disappointment in China’s recovery hopes has also contributed to the drop in both currencies with AUD taking a larger share of the hit. But SGD’s outperformance has been ongoing for a much longer period - according to Bloomberg estimates, SGD has gained ~40% against Singapore’s major trading partners from the time PM Lee Hsien Loong entered office in 2004 whereas the AUD trade weighted index has gained just 3.7% in the same period.
- More importantly, AUD has fallen ~31% against SGD since 2004 and at current levels ~0.8850, AUD may look undervalued from a more medium to longer term perspective. Australia’s hotter than expected Q1 CPI released last week has seen longer term inflation expectations rise in contrast to many of its peers and following the data release, Citi Research no longer see the RBA cutting rates this year from its current level of 4.35%. The RBA is now expected to commence its rate cut cycle in 2025, well behind its G10 peers. AUD rates markets agree, discounting just 6bp of RBA cuts for this year with a terminal rate of 3.9% expected in Q3’2025. This puts the RBA on a more hawkish scale relative to its peers.
- Last week also saw Singapore release its March core CPI. In contrast to Australia’s CPI, Singapore headline inflation has slowed more than expected and sequentially, core CPI has fallen for the first time since Jun 2021. The result has seen the MAS modify its language slightly on its 2024 forecast range, saying core CPI remains on a “gradual” moderating trend for the rest of 2024, but with a seemingly less hawkish trajectory vs the April Monetary Policy Statement. The MAS added that the outlook on imported inflation remains identical to last month but acknowledges that increases in business costs are now seen passed on to consumer prices at a “reduced” pace (vs “gradual” pace last month). Singapore’s core CPI is still expected to resume a “gradual” moderating trend to year-end with both headline and core CPI seen at 2.5-3.5% in 2024 but now with more two-sided risks.
- While the weaker inflation outturn is unlikely to change the MAS’s stance in keeping SGD $ NEER on the strong side of the band, it may not “encourage” SGD $ NEER to hug the stronger end of the band and may even allow it to drift somewhat lower as hawkish risks recede somewhat from Singapore’s weaker core inflation outturns in January-March, below consensus 1Q24 GDP advance estimates, and the somewhat softer language used by the MAS recently. At the same time, a likely more hawkish RBA that retains tighter financial conditions for longer may spark a medium term rebound in AUDSGD from the current levels that puts AUD on a relatively cheap scale.
AUDSGD – At Multi-year Lows With AUD Having Cheapened By ~31% Since 2004
Source: Bloomberg, April 25, 2024
