Currency Briefing - what you need to know for Mon May 7, 2012

The local currency is trading at $1.2496 amidst negative market sentiment.

IG Markets Singapore said:

The Singapore dollar continues to lose ground against the greenback as market sentiment takes another turn for the worst.

Currency traders went from being cautious before non-farm payrolls data was released on Friday night to becoming very bearish once the figures were out. Another weak read for US employment creation had investors running to safe haven assets like the US dollar and German bunds.

Markets have also been spooked by European elections which have seen France’s Sarkozy toppled and a messy race to a form a new coalition government in Greece. The fear is that a new Greek government may oppose some of the austerity measures the previous government agreed to and unravel the second bailout package agreement.

The Singapore dollar now trades up at $1.2496 testing the $1.25 ceiling.

GFT meanwhile noted (for 4 May 2012 trading):

Currencies and equities traded sharply lower today on the back of weaker non-farm payrolls. The U.S. dollar initially sold off against all of the major currencies but after the stock market opened for trading, risk aversion swept through the markets, forcing the euro to give up all of its earlier gains.

The losses in commodity currencies intensified while USD/JPY broke below 80. The possibility of more stimulus was very negative for USD/JPY but softer U.S. growth hurts other countries too and for this reason, higher beta currencies sold off more aggressively than the greenback.

Risk aversion returned and with no major U.S. economic data to reassure investors that the U.S. economy is not doing as poorly as the non-farm payrolls report suggests, further losses are likely in the coming week. The only U.S. notable economic reports on the calendar are trade balance and jobless claims on Thursday followed by producer prices and the University of Michigan Consumer Confidence index on Friday.

Risk appetite will therefore hinge upon Chinese data. While we don’t expect much from the U.S., we have plenty of economic data from China. Trade, inflation, industrial production and retail sales reports are all scheduled for release.

Based on the latest PMI reports, China is undergoing a soft landing. As long as this remains the case, it poses no major threat to global growth. However if next week’s reports surprise to the downside, we could be in for some additional volatility as a simultaneous slowdown in China and the U.S. spells big trouble for the global economy.