Currency Briefing - what you need to know for Tues March 13, 2012

A MAS tweak in the exchange rate system to slow the local currency’s appreciation is said to be possible.

IG Markets Singapore said:

China’s trade deficit is still weighing heavily on Asian currencies. After it shocked the region with a $31.5 billion trade gap the Chinese authorities are now meddling with the Yuan to make it cheaper, helping its exporters.

This has spooked rival Asian currencies which will have to prevent their currencies appreciating further. This is a particular concern for an export-driven economy such as Singapore. It has relied on a slow but steady appreciation of the Yuan in relation to the Singapore dollar, but now this trend is being questioned as the Yan trade band widens. China is hoping a favourable currency depreciation will boost exports, but at the detriment of Asian trading partner currencies.

This could see the Monetary Authority of Singapore tweak its own exchange rate system to slow the local currency’s appreciation, a move being anticipated by local traders.

The US dollar is at $1.2580 against the Singapore dollar in early trading today. Eurozone concerns still linger with investors still preferring the greenback to the EUR.

The next big news that could move the currency pair is the Fed’s interest rate meeting on Wednesday, although quantitative easing seems to be firmly off the agenda for the time being.

GFT meanwhile noted (for 12 March 2012 trading):

It has been an extremely quiet day in the foreign exchange market. The lack of U.S. economic data and fresh European troubles has kept currencies confined in relatively tight ranges.

On average, most of major currency pairs fluctuated no more than a third of a percent. The Australian dollar moved the most, falling 0.7 percent on the heels of weaker Chinese trade numbers.

This is a big week for the U.S. dollar and the foreign exchange market and the action will begin tomorrow. For the past few weeks, the U.S. dollar has performed extremely well thanks to better than expected U.S. economic data that pushed Fed Chairman Ben Bernanke to hint that additional stimulus may no longer be necessary.