FXStreet (Barcelona) - Irene Cheung, Senior FX Strategist at ANZ, notes that in a surprise announcement MAS decided to lower the slope of its policy band, further expend USD/SGD to end this year at 1.39.

Key Quotes

“In a surprise announcement this morning, the MAS said that it will reduce the slope of the policy band, while keeping the width and the centre of the band unchanged.“

“With this, we now assume a more gentle slope in S$NEER appreciation, at 1% p.a. compared to our previous assumption of 2% appreciation p.a.“

“With this, the MAS cut its 2015 headline CPI forecast to -0.5% to +0.5% (from 0.5% to 1.5%) and core is now forecast at 0.5% to 1.5% (from 2% to 3%).”

“All said, the timing of today’s announcement was unexpected. We had expected the central bank to adopt a more gradual appreciation policy in the April review. With this, we now expect USD/SGD to end this year at 1.39 vs our previously projection of 1.37.”

“Today’s move bodes well for our 12m USD call SGD put trade which we initiated on 21 January (strikes ATMF 1.3415 and 1.38. Spot reference 1.3386), at a cost of 0.99%.”