Currency Briefing - what you need to know for Thurs March 22, 2012

The British pound and the Japanese Yen were the only currencies to outperform the US dollar.

IG Markets Singapore said:

The Singapore dollar has held steady against the US dollar currently sitting at $1.2635. It is likely to remain within a tight trading band of $1.2570 and $1.2670.

Asian currencies have been under pressure this week with investors spooked about the health of China’s economy.

China is again in the spotlight today with HSBC’s flash PMI manufacturing figures due out this morning. The PBOC has also announced monetary easing for one of the country’s biggest rural banks.

The greenback has been strengthening against the local currency with improving economic data. But nothing market-changing has materialised this week to push the US dollar higher.

But the Singapore dollar has been picked out as the outperformer among Southeast Asian currencies by Standard Chartered. It says the currency doesn’t face the same liquidity dynamics as its Asian peers like the Thai Baht and the Malaysian Ringgit.

Yields rose on long-dated Singapore government bonds, which tracked some profit-taking on US treasuries.

RBS, on the other hand, reported (for 21 March 2012 trading):

The USD closed the session virtually unchanged vs. the G10 even as US Treasury yields slipped (the US 5-year swap rate fell about 7bp today).

Data and news-flow were fairly light during NY hours, but 4Q GDP in New Zealand and Japanese trade data for February highlight the upcoming calendar. The Japanese trade balance will be interesting to watch as the effects of the earlier-than-usual Chinese New Year wane.

Notably, China reported that imports from Japan rose 52% in the month of February while exports fell 15%, which will likely fuel a narrowing of the trade deficit in February. We still expect deteriorating fundamentals, including a persistent trade deficit, to put further downward pressure on the JPY.

GFT meanwhile noted (for 21 March 2012 trading):

Despite the slide in equities and the decline in U.S. yields, the dollar continued to strengthen against the euro, Swiss Franc and commodity currencies.

The British pound and the Japanese Yen were the only currencies to outperform the greenback but their gains were nominal. Disappointing economic data, renewed concerns about Europe’s sovereign debt crisis and fear of weaker manufacturing activity in China continues to drive investors into the safety of U.S. dollars.

Chinese manufacturing Flash PMI numbers are due for release this evening and based on how the general economy has been performing there is risk of a downside surprise. Slower growth in China is one of the biggest concerns right now. Not only have we seen evidence of that, but the Chinese government officially lowered their growth forecasts.

Throughout the financial crisis, China did the heavy lifting, keeping Asia and other parts of the world sheltered from the storm. Now that the U.S. economy is improving, the Chinese economy is beginning to slow but the problem is that the U.S. recovery is not on solid footing.