Currency Briefing - what you need to know for Tues April 24, 2012

The Singapore dollar sits at US$1.2480, and MAS wants to appreciate the local currency amidst high inflation.

IG Markets Singapore said:

Interest is growing in holding the Singapore dollar as inflation crept above 5% last month and supported the need to keep the currency strong. A bullish trend is becoming more likely this year.

Yesterday the Monetary Authority of Singapore (MAS) announced consumer prices rose 5.2% in March, higher than expected. The MAS wants to appreciate the Singapore dollar during this period of high inflation.

COE prices have contributed to rising inflation, along with food prices and wage costs, which are keeping inflation stubbornly high. MAS uses the currency to manage inflation, whereas most economies use interest rates.

Today the local currency sits at US$1.2480. In the mid-term the Singapore dollar is expecting to take a more bullish trend as it moves towards the next key resistance level of $1.2450.

The greenback enjoyed more inflows last night as risk sentiment took a turn for the worst with fears over Europe’s economic and political health, along with China’s growth.

GFT meanwhile noted (for 23 April 2012 trading):

Problems in Europe and a corruption scandal for Wal-mart, the world’s largest retailer, sent currencies and equities sharply lower today.

All 3 U.S. equity indices fell approximately 1 percent with the series of lower highs and lower lows pointing the possibility of further losses. Technical patterns however are not the main reason why investors need to be wary of a deeper sell-off in the financial markets.

Europe’s political troubles are just beginning and will most likely intensify over the next few weeks. At the same time, the three central banks convening on monetary policies will most likely have more negative than positive things to say about the global economy. Their pessimistic comments combined with a continued focus on Europe will make it difficult for the EUR/USD and risk appetite to recover.

Political troubles dominate the headlines but don’t forget about Spanish bond yields which continued to creep higher, settling at 5.945 percent. Mark our words – Spain will come back to haunt the euro even though everyone’s attention is currently focused on France and the Netherlands.

The week started off with softer economic data from around the world and unambiguously good news would be needed for the markets recover.

RBS, on the other hand, reported (for 23 April 2012 trading):

Overnight themes surrounding Euro-area political stress carried over into the US day, though equity markets, along with the EUR, posted modest recoveries during the US session after Europe closed. The events over the weekend in the Netherlands further highlight the multitude of political risks facing the Euro-zone related to "fiscal fatigue."

We currently hold core EUR short exposure vs. USD, GBP, and CAD. The still below-50 HSBC PMI print in China, along with poor Euro-area preliminary PMIs for April, likely contributed to the risk-negative environment during a session with no headline data releases.

Bank of Canada's Carney repeated the Bank's view that some modest removal of stimulus may become appropriate. Ahead tonight the key focus will likely be the RBA, where a decline in the y/y inflation rate may pave the way for an interest rate cut in early May. However, a rate cut in May is almost fully priced in at this stage and therefore only an upside surprise in inflation should merit a significant reaction in the AUD.