USD/SGD: Higher Unemployment Rate Sinks Singapore Dollar

Singapore’s headline unemployment rate hit 2.1% in Q2 2013, highlighting the worsening of the local economy which saw the unemployment rate slowly gaining from Q4 2012′s 1.8%, to Q1 2013′s 1.9% and now 2.1%. Beneath the headline figure, the situation appears to be worse. Resident unemployment rate currently stands at 3.0% similarly growing from 2.7% Q4 2012 and 2.9% earlier this year. Unemployment rate for Singapore Citizens are even higher, rising now to 3.1% from 2.9% from the preceding 2 quarters. The increase in unemployment rate flies in the face of the increasing numbers of job created in the quarter, which sum up to 32,500 in Q2 2013, compared to 28,900 in Q1. Total employment numbers have also risen significantly, standing at 3,419,000, 4% higher on a Y/Y basis.

The standard plausible explanation to reconcile such divergence is to assume that participation rate of employment has increased. However, in the context of Singapore, who relies heavily on foreign talents and does not have a huge local citizenry, as such participation rate should not vary that much to begin with. Therefore, the only plausible explanation is that the new jobs are actually given to foreigners who tend to cost much lesser. This assertion goes in line with the higher number of layoffs, which grew from 2,120 the previous quarters to 2,900 workers.

Without commenting on the socio-political implications of such an arrangement, it seems that the increasing unemployment rate should not impact Singapore’s economy, at least not in the short run. Hiring cheaper foreign labor is actually a positive move, and allow firms to be much more competitive with a lower overhead. As mentioned previously, Singapore does require to alter her economic drivers considering that her industrial output has been falling even as global markets are recovering. The once vaunted Singapore high-tech industries which produce high-end electronics and pharmaceutical products are slowly taken over by Taiwan, Malaysia and Thailand. Singapore firms definitely need to restructure themselves in order to compete better, or risk losing out entirely.

Hourly Chart
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Hence, it is interesting to see that SGD actually weakened, sending USD/SGD towards 1.274 following the data release, when the numbers aren’t that bad. Even if we disregard the short-term positive impact and focus purely on the headline figure, a 2.1% unemployment is highly enviable even in healthy nations in the Scandinavian countries, not to mention our beleaguered friends in Euro-Zone. However, if we see the short-term trajectory of USD/SGD, with price trading nicely within a rising channel, it becomes not surprising that USD/SGD rallied significantly (relatively) following the economic news release despite prices traditionally being insular towards local economic data. This shows that the underlying sentiment of USD/SGD remains firmly bullish, and even though we are currently looking at prices bouncing lower from Channel Top, with Stoch levels hinting of a bear cycle, the likelihood of price holding above Channel Bottom remain high. Furthermore, given the fact that stoch troughs has been formed this week around the 50.0 level, any subsequent bear cycles that emerge from here may be stopped short similarly, again affirming the holding of Channel Bottom scenario.

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