Currency Briefing - what you need to know for Fri April 27, 2012

The local currency hit a six-month high against the US dollar before sitting at $1.2415.

IG Markets Singapore said:

The Singapore dollar hit a six-month high against the greenback in trading yesterday.

Dovish tones from the Fed chairman Ben Bernanke put downward pressure on the US dollar as it dipped to S$1.2399. This was its lowest level since late October 2011. At the same time, the Singapore dollar strengthened as industrial output declined less than expected.

Overnight the local currency has given up some of these gains as the greenback strengthened - currently sitting at $1.2415.

On Wednesday night the Fed reiterated its low interest policy will remain in place into 2014 leading to a softening among traders. With QE3 always in the background, these factors may curb US dollar appreciation for the rest of this year.

Meanwhile the Singapore dollar is expected to appreciate against the US dollar as the local currency is used to curb rising inflation.

GFT meanwhile noted (for 26 April 2012 trading):

The strength of the Japanese Yen against all of the major currencies reflects the market’s expectation for a more modest move by the BoJ. The lack of volatility in the U.S. dollar reflects the lack surprises in U.S. data.

For some time now, we have seen evidence of the U.S. recovery losing momentum and even though Bernanke reiterated his concerns, the Fed is in no place to act at this time.

We continue to believe that QE3 will be reserved for a more desperate time in the U.S. economy and as things currently stand there is not enough consensus or even reason for the Fed to resort to this nuclear option.

RBS, on the other hand, reported (for 26 April 2012 trading):

G10 currencies mostly stayed within narrow trading ranges once again even with several US data releases. The US data, on balance, disappointed, but with US equities positive for the session, some of the higher beta currencies modestly strengthened versus the USD.

AUD/USD regained its overnight losses and was pushing 1.04 at the time of writing. USD/JPY managed to rebound slightly off of the session lows ahead of the Bank of Japan's policy decision.

We expect the Bank of Japan to ease policy by expanding the Asset Purchase Program (APP) by ¥5tn and extending the deadline for the APP. The consensus appears to be anticipating more aggressive action from the BoJ than we think is likely. We see this as opening up upside potential for the JPY, and short EUR/JPY in particular would be a preferred way to express near-term JPY strength in our view.