Currency Briefing - what you need to know for Fri March 16, 2012

The US dollar came off its recent high against the Singapore dollar.

IG Markets Singapore said:

The US dollar has come off its recent high against the Singapore dollar slipping back from $1.27 overnight. It now sits at $1.2632.

It has been a good week for the greenback as the US economy continues to show signs of recovery. Last night it revealed more positive data for New York region manufacturing, underlying inflation and jobless claims. The US dollar was also helped by worries that China’s landing might be harder than expected which has seen currency traders exit Asian currencies.

While a strong US economy normally leads to a weakening currency, this relationship is starting to become less pronounced. A recovering US economy means QE3 is less likely to happen which would pump billion of cheap dollar into the financial system and devalue US dollars. The US benchmark, the S&P 500, last night hit a near four-year high revealing the upbeat mood among investors.

Traders expect the greenback to trade within a $1.2610 – $1.2750 range in the short term.

Singapore government bonds have edged off slightly based on expectations that the Fed won’t carry out more quantitative easing, with hopes that this cash would find its way into Asian assets.

Meanwhile GFT noted (for 15 March 2012 trading):

The U.S. dollar sold off against all the major currencies today for a few different reasons. 1) First and foremost, the greenback enjoyed a very strong rally over the past month, particularly against the Japanese Yen and became overbought as a result. Although we believe that further gains is likely in pairs such as USD/JPY, a pullback or minor correction is very normal.

2) Secondly, the dollar had been taking its cue from 10 year U.S. Treasury yields and the lack of further gains held the dollar back.

3) Third, U.S, stocks continued to rally with the S&P 500 rising to its highest level in 4 years. This strong performance gave investors the confidence to dip their toes back into risky assets.

At the end of the day, even though Europe is mired in sovereign debt troubles and Australia is hit by weaker Chinese growth, if equities maintain their gains, the optimism of investors should benefit those currencies and economies.

In other words, if the U.S. economy continues to outperform, eventually Europe and Asia will reap the benefits. The decline in the dollar today has been modest and leaves the downtrend in other currencies intact for the time being.

4) And finally the dollar was hit by S&P’s confirmation that the U.S. rating outlook remains negative. They said it is unlikely that any economic improvement would bring the country’s rating back to AAA.