Currency Briefing - what you need to know for Fri March 23, 2012

The past two days saw losses for most currencies amidst renewed concerns about the sustainability of global growth.

GFT noted (for 22 March 2012 trading):

Taking a look at the price action in the currency and equity markets, many investors may be wondering if the rally is finally over. This is the second day of losses for most currencies and the third straight day of losses for the S&P 500. The “all is now better” mentality is fading from the market quickly and replaced with renewed concerns about the sustainability of global growth.

Better than expected U.S. economic data failed to offset the series of negative economic reports released overnight. If the U.S. recovery was more mature and on firmer footing, slower growth in China and Europe would not be as damaging to risk appetite but unfortunately the U.S. recovery is still at its initial stages.

Even U.S. central bank officials have expressed skepticism about the pace of improvement and warned that unemployment remains very high. U.S. equities had a very nice run that was fueled by liquidity injections, improvements in U.S. data and Apple. Based on recent comments from policymakers, the need for further liquidity has diminished after the Greek default.

Of course, if the troubles in Spain or Italy magnify, another long term refinancing operation from the ECB will be needed but for the time being, most central banks have made it clear that they are comfortable with the current level of monetary stimulus. In this case, there will not be further liquidity injections to fuel the rally in equities and currencies.

All the good news from Apple is out already and so speculation about what the company will do next should subside. This leaves us with only U.S. data to fuel the rise and unfortunately this week’s economic reports are not market moving enough to carry the rally in equities.

RBS, on the other hand, reported (for 22 March 2012 trading):

A risk-off tone was prevalent when the US session began after poor manufacturing PMIs out of China and the Euro-area weighed on sentiment and risk appetite never really regained its footing during the NY day.

The CAD was among the weakest performers in the G10 today, likely driven by a sell-off in oil as well as weaker than expected retail sales (+0.5% vs. consensus +1.8% m/m).

US rates slipped today on the risk-off move but the US 5-year swap rate, our preferred measure of rate support for the USD, found support at its 200-day moving average.

IG Markets Singapore meanwhile noted:

Poor manufacturing output numbers from China pushed Asian currencies lower yesterday, including the Singapore dollar. The PMI figures came in worse than expected and are worrying traders as to how hard China’s slowdown will be.

The local currency sits at $1.2651 as it continues along a narrow trading band. It is finding support at $1.25 but resistance at $1.27. The Greenback has strengthened this week against major currencies.

Europe also printed disappointing factory output figures last night which spooked traders as to the strength of the global economic recovery. The nervousness has caused a flight to safety back into safe-haven currencies like the greenback although safe haven assets such as gold haven’t benefited.

Singapore has been enhancing its status as a global FX trading hub. Yesterday it announced SGX-listed companies can now trade their shares in dual currencies which may boost liquidity in non-Singaporean dollars. Investment house ARA also plans to list a Yuan-denominated Reit in Singapore would boost Singapore’s credibility as a rival to Hong Kong as an offshore Yuan hub.