SGX Nifty: is it the leading indicator for SGD traders?
By Paul Reid
22 January 2024
The global financial market behaves a lot like a living entity. It’s a complex ecosystem, and finding the connections between certain market moves can give valuable insights into forecasting. One such connection traders have considered is the relationship between the SGX Nifty and the Singapore dollar (SGD). But do SGX Nifty market moves preempt SGD shifts?
The SGX Nifty theory in a nutshell
First of all, the SGX Nifty is a futures contract traded on the Singapore Exchange (SGX). It is not the same as India’s Nifty 50 index, which is 50 of the largest Indian companies listed on the National Stock Exchange (NSE), although the prices are mirrored.
While the Nifty 50 index is traded in Indian rupees, the SGX Nifty is traded in SGD, which is where theorists make the connection. The theory suggests that a robust SGX Nifty hints at a thriving Indian economy, and India's economic prowess bolsters Singapore's economy due to their intertwined trade relations, in turn strengthening SGD against its currency pairs.
There is a line of logic in that theory, but can traders successfully profit using the SGX Nifty as a leading indicator for SGD trading?
Do SGX Nifty and SGN Trends align?
There have been plenty of moments that seemed to endorse this narrative. Whenever the SGX Nifty surges and SGD follows, the theorists appear with big claims on social media. The theory has transcended mere academic musing; it has become a tangible strategy, a tool for traders seeking to decode the cryptic language of forex markets.
But when the curtains are pulled back, the SGX Nifty-SGD correlation reveals itself to be less of a steadfast rule and more like a fleeting coincidence. The chart below shows an overlay of SGDJPY (Singapore dollar vs. Japanese yen) and the SGX Nifty. Do you see a correlation?
Look closer. There is an overall trend present, but track the blue line from November 2023 (left) and see if there are moments when the trend shifts occur on blue before yellow.
Moreover, SGDJPY was the closest trend match of all the options. Other SGD pairs showed significantly different trends that were not comparable.
The global financial stage is vast, and both these assets are influenced by forces such as global economic shifts, political climates, trade policies, and more.
The deeper one delves, the clearer it becomes: the relationship between the SGX Nifty and the SGD is not a linear tale of cause and effect. Yes, the bulls and bears align from time to time, but even a broken clock is right twice per day.
In the end, the saga of the SGX Nifty and SGD teaches us a valuable lesson: financial markets are a mosaic of influences. The allure of finding a simple predictor is strong, but the reality of trading is far more nuanced and challenging.
It’s highly recommended that you read this article that delves into market sentiment and then learn how to trade risk-free on the Exness demo account. Test your observations before trading today’s opportunities. Knowledge is power, and knowledge is free, so educate yourself before you hit the buy or sell button.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.