Local currency in trouble amidst safe haven flows

Analyst says traders are ditching risk assets, causing the Singapore dollar to lose value.

IG Markets Singapore said:

The Singapore dollar has lost a lot of ground against the greenback as it flirts with the $1.29 level.

Investor confidence took a severe dent last night as eurozone concerns grew as both Italian and Spanish bond yields pushed above 6% this year.

The single currency fell to a two-year low as investors flew to the US dollar for safety.

Traders are ditching risk assets, which include Asian currencies, in a big way which is seeing the local currency lose value. Having fallen below $1.24 the US dollar is now worth $.1288 Singapore dollars this morning.

Having breached the psychological $1.28 level last night the pair will have $1.29 in its sights if eurozone fears remain at this critical level.

RBS meanwhile noted (for 30 May 2012 trading):

Safe haven flows continued to aid the USD and the JPY as risk oriented currencies declined steadily during the NY day and US 10-year yields and German 2-year yields fell to record lows.

Indeed, the USD index rose to a new high since 2010 above 83 during NY time, but we are increasingly wary of chasing USD gains from current levels. We do however hold a USD/JPY long position on the back of deteriorating fundamental conditions in Japan and the potential for further MoF/BoJ easing.

Swiss 1Q GDP may be the main focus overnight and while GDP is expected flat, improvements in the KoF leading indicator, which has a fairly good correlation with GDP growth, points towards a bottoming in growth in Switzerland.

In general, local data in Switzerland has held up better than feared, however, the EZ crisis continues to induce uncertainty, which could threaten the EUR/CHF floor. Even though uncertainty is expected to pick up over the coming months, we stick with our view and do not expect the SNB will allow the floor to break.

Ireland begins its referendum vote on the EU fiscal pact and current polls suggest that the measure will pass, but results will not likely be known until 1 June. Finally, Brazil announces the SELIC rate after hours in Brazil and we expect a 50bp cut to 8.5%.