A quarter of the year has passed since I last wrote about SGD INR and it is satisfying to see the analysis going right – the pair dropped below 32 in the first quarter.
I did not realise that I happened to be one of the few who write about the pair and recently a lot of people have been asking my views on the pair given the new financial turmoil stirring up on the horizon.
Before going into details lets enumerate the factor variables and conflicting forces active at this point in time.
- The Euro precipitation due to crisis in Greece.
- Flight from Emerging Market investments as a risk aversion
- MAS’s decision to let SGD appreciate against the basket of currencies to reign in inflation
- China’s indication on letting Yuan strengthen
- Recovery in US economy and its impact on USD.
Add to it that SGD INR is a cross pair determined by movements of SGD/USD and USD/INR.
USD/INR
USD/INR dropped below the mark of 44 a few days back and has since sharply recovered. The long term mean for the pair has been the 44-45 mark with fluctuations of Rs.5 either side. The pair would continue to strengthen as the Indian economy grow and there is Foreign Direct Investment. With the greece crisis stirring up there is bound to be some profit taking in the Indian markets by FII and flight of capital outside India. This would result the pair moving towards the 46.0 mark as a knee jerk reaction.
Further more with EUR depreciating the USD – there will be added strength to USD which would indirectly work in favour of USD/INR marching upwards.
However with Yuan appreciating against the USD some of the USD strength against all currencies would be negated.
SGD/USD
This one is a more complicated pair to analyse. The singapore economy has shown good growth in the first quarter and the pair has gradually strengthened to below 1.40 levels. The MAS has shown intent to let the SGD appreciate against a basket of currencies.
No one knows for sure what is the composition of this basket – but USD and EUR definetely are larger components. There is a posibility that Yuan might be added to this basket if not already a part of it or get a bigger weightage if its already there.
With currency appreciation a way to reign in inflation the pair might edge back to 1.35 though this movement would be gradual. On the flip side a strong currency makes exports cheaper for Singapore – both services and manufacturing and government might still want it to hover around sub 1.39 mark.
How the 2 impact SGD/INR?
Now with USD/INR looking to touch 46.0 and SGD/USD moving around 1.375 (taking mid point between 1.35 and 1.40) mark the cross rate would be 33.45 – with a lower and upper range of 32.80 ~ 34.07
I would recommend this retracement to convert SGD to INR before the long term trend of a march towards 30 resumes.
Aditya Ladia 
UPDATE:
The pair achieved the 33.5 Target on Friday and should linger around the mark for 2 -3 days and start sliding back towards 33 taking off 5 – 10 pips a day after that.
The EU crisis should be seen as parallel of Asian crisis a few years back, the global markets will be affected but would pick up after the initial fear settles down.
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Well EU came out with close to a trillion $ package after I wrote. I do not see the pair touching 34 unless economic conditions go bad. I would expect a quick breach of 33 in next few days anywhere between 1 to 15 days and a equally quick retracement.
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Looks good and thanks that you chose to write after a quarter atleast as at times I feel market doesn’t move at all if you don’t comment on it 🙂
32.80 ~ 34.07 can you elaborate more on the timelines that you are looking for ?
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