Singapore Dollar: Inflation keeps MAS tightening risk alive - Commerzbank

Commerzbank analysts Henry Hao and Moses Lim note that Singapore's August NODX growth, excluding oil, reached its strongest level since 1998, fueled by surging electronics and robust AI-related demand. They anticipate NODX to remain robust, albeit at a moderate pace, as base effects diminish. With inflation expected to rise and solid growth, the upcoming CPI release is under scrutiny.

The USD/SGD pair has benefited from the overall strength of the US Dollar. August non-oil domestic exports (NODX) exceeded expectations, surging 46.2% year-over-year (Bloomberg consensus: 35.1%) compared to a 24.1% increase in July, marking the highest growth since October 1998. While electronics continue to drive growth, non-electronic NODX showed a recovery in August.

YTD, NODX is up 22.4%, significantly surpassing the government's year-end forecast of 14-16%. Looking forward, NODX growth is projected to remain firm, supported by AI-related demand and major consumer electronics launches; however, growth should moderate as base effects become less favorable. Electronics are anticipated to remain the primary growth driver, potentially compensating for persistent weakness in the non-electronic sector.

The upcoming focus is the August CPI, scheduled for September 23; headline inflation is forecast to rise to 2.3% year-over-year from 2.2% in July, while core inflation, excluding private transport and accommodation costs, is projected to climb to 2.2% from 2.0% previously - the highest core inflation reading in nearly two years.

In foreign exchange, USD/SGD was stable around 1.2760 but rose 0.7% last week due to USD's broad strength and elevated global oil prices.