USD/SGD: Falling Exports Driving Weaker SGD

Singapore’s June Non-Oil Domestic Exports (NODX) grew 3.2% M/M, however on a Y/Y basis, the numbers are dismal. First off the bat, Y/Y headline figure for overall exports fell 8.8% vs a 4.1% fall back in May. Electronics fell 12.4%, while pharmaceuticals fell by 35.4%. Exports to the 2 largest markets – EU fell by 33.6%, while United States took in 15.9% less goods from Singapore Y/Y. The only saving grace is exports to China, which grew 7.0%, but comparing to May’s 6.2%, the increment is not exactly spectacular. Looking at May’s number for EU and US which came in at -4.3% and -0.8% Y/Y, it is clear that the decline in June is clearly sharper, and signal that all is not well. The worsening situation also puts doubt on the M/M headline growth figure, as the number is seasonally adjusted, which means the actual nominal figure is most likely lower, given the worsening numbers stated earlier.

USD/SGD traded higher following the news release, as this implies that the local economy has not truly turned the corner, as we were led to believe by the recent stronger than expected GDP print. However, it is also worth noting that Singapore exports tend to be highly volatile due to a significant weight in oil products that varies sharply from month to month. Nonetheless, this Y/Y decline marks the longest run of declines since the 2007-2008 financial crisis, and the 8.8% fall is way higher than the 5.8% expected drop, suggesting that this is more of a structural issue and should not be chucked away as mere volatility. Interestingly, recent GDP numbers showed that manufacturing output has increased significantly, but that is apparently not reflected in exports, with Europe and US not buying. If this problem continue to persist, it is likely that the higher manufacturing output we’ve seen last month will not be sustainable, and it is possible that output and thus GDP will be lower moving forward – lower SGD abound.

Hourly Chart
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From a technical perspective, USD/SGD is currently facing a soft resistance around 1.2615 after the rally. Prices rallied at the most opportune time for bulls, as it allowed price to stay above the 1.258 support and break the descending trendline that has been in play since Monday, which is incidentally the same slope that characterized the stable decline post FOMC minutes last Wed (Thurs Singapore Time). By breaking this trendline, bulls gain initiative to push towards the 1.266-68 swing top, provided 1.2615 breaks. Stochastic readings is in favor of such a break, as readings are still a fair distance away from Overbought region, which suggest that current bullish movement still have space to head higher before pullbacks can be reasonably expected.

Daily Chart
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Price on the daily chart is also bullish, with higher highs and higher lows since May. Even though we are currently trading below the 1.265 resistance, this level is relatively softer compared to stronger resistance such as 1.275 and 161.8% Fib confluence and the 1.2525 support. Furthermore, Stochastic readings are currently pointing higher, suggesting that a bullish cycle may embark soon. Couple this with the fact that today’s candle look like a Hammer (bullish reversal) with the Hammer Head above 1.26, it appears the the 1.26 support (which is stronger than 1.265 resistance) is holding, and puts bulls in a good position to break 1.265 and head higher especially since Singapore’s economy outlook for 2H 2013 is appearing to be lower.

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