Currency Briefing - what you need to know for Wed May 2, 2012

The local currency is trading at $1.2369 against the US dollar.

IG Markets Singapore said:

The Singapore dollar continues to slowly edge up against the greenback and trades at $1.2369.

Having broken through a key resistance of $1.24 it is now using this as a floor to continue a slow and steady appreciation against the US dollar.

Foreign currency traders have been increasing their bets on the Singapore dollar following the Monetary Authority of Singapore’s policy on appreciating the currency.

The greenback also saw traders head away from the safe haven to riskier currencies after stronger-than-expected US manufacturing data yesterday improved sentiment.

Traders are now more confident that the US economy is on the road to recovery which reduces the need to hold US dollars as an asset protector.

GFT meanwhile noted (for 1 May 2012 trading):

It is not often that we see a simultaneous rally in the U.S. dollar and U.S. stocks. The Dow Jones Industrial Average rose to its highest level since December 2007 today while the S&P 500 rose to a more modest 3 week high. The rallies were sparked by better than expected U.S. data and gains in banking stocks.

Normally good U.S. data is more positive for risk than for the U.S. dollar but with the Fed keeping investors guessing about another round of Quantitative Easing, the latest manufacturing sector reported alleviated some concerns about a slower U.S. recovery.

We are skeptical of course because the ISM reading conflicts with regional data. Nonetheless the data is good and has provided support for the dollar as investors reconsider their QE3 positions.

RBS, on the other hand, reported (for 1 May 2012 trading):

The better-than-expected US ISM manufacturing release appeared to catch market participants wrong-footed. The USD was weaker going into the release but the upside surprise resulted in several pairs reversing course.

USD/JPY moved back above 80, where it stayed for the rest of the session and EUR/USD dropped down to 1.3204 before recovering some lost ground.

The CAD also benefited from the stronger print though the AUD and NZD reactions versus the USD were more muted, likely due to the unexpected 50bp cut by the RBA.