Currency Briefing - what you need to know for Wed March 28, 2012

The Singapore dollar holds steady against the greenback at $1.2581.

IG Markets Singapore said:

The Singapore dollar sits at $1.2581 holding steady against the US dollar today after gaining ground yesterday. The region is still digesting comments made by Fed Chairman Ben Bernanke about the prospect of another round of quantitative easing in the US economy.

Such an event would put downward pressure on the greenback. While a US recovery is progressing there are worries that unemployment may not be falling as fast as policymakers would like so may need a fresh injection of liquidity to boost demand in the economy.

Yesterday Asian currencies edged up against the US dollar with the local currency starting Asian trading at $1.2578. It has managed to hold onto these gains overnight.

The US dollar had slipped as low as $1.2533. But the currency pair remain range-bound for the time being.

Singapore government bonds are little changed. However, today marks the end of auctions for its first ever 30-year bonds, designed to help develop the debt markets rather than fund its budget. Demand is expected to be strong, particularly from the insurance sector.

GFT, on the other hand, reported (for 27 March 2012 trading):

It has been an extremely quiet day in the foreign exchange market with the U.S. dollar treading water against most of major currencies.

Dollar bulls must be relieved to see that the greenback has not extended lower despite more disappointments in U.S. data. Now is not a good time for the U.S. recovery to lose momentum. With China and the Eurozone economies slowing, stronger growth is needed in the U.S. to keep risk appetite supported.

On Monday, U.S. stocks climbed to its highest level since 2008 but like currencies, equities consolidated today, leaving investors wondering if there is more gas in the tank to continue the rally. If U.S. data continues to disappoint, there would be less motivation to buy stocks and other risky assets.

However it is no secret that the rally in global equities can be largely attributed to the flood of cheap money from central banks which explains why stocks can hold near its highs despite softer economic data. The possibility of more stimulus from the Federal Reserve and/or ECB has left investors with the hope that more money will flood into the market.

RBS meanwhile noted (for 27 March 2012 trading):

Regardless of one's view on the need for further (short) position liquidation, there are increasing signs that the positioning squeeze so far has pushed the EUR above fundamentally justified levels – against a variety of currencies.

Indeed, our EUR/USD, EUR/CAD, and EUR/JPY models are all pointing towards sharp overvaluation of the EUR. While further patience may be needed, we continue to recommend broad short EUR exposure as a prime focus in FX positioning for the period immediately ahead.