Singapore continues advance against the greenback

The local currency is trading at its highest level in over 12 months.

IG Markets Singapore said:

After meaningfully breaking through 1.22 yesterday morning the Singapore dollar continued to advance against the US dollar, to trade at its highest level in over 12 months.

We saw a low of 1.2155 on USDSGD, the lowest level since 9 September 2011, encouraging the belief that further USD weakness could see us retest the all-time highs around the 1.20 level in the coming weeks.

Risk currencies remained firm on the whole with the euro remaining above 1.31 and the aussie pushing towards 1.04.

Today’s session brings an early focus on Chinese data releases, in particular Q3 GDP, expected to print at 7.4%. A number widely above or below expectations could see some additional volatility in to risk currencies, especially other Asian currencies.

Thursday also sees the beginning of a two-day EU summit in Brussels. Though it seems most major decisions on Spain and Greece will not emanate from this summit, newswires will still be closely watched for any surprise developments.

DBS Group Research meanwhile noted:

Two things are needed to sustain risk appetite today. First, no negative surprises at the EU Summit please. Second, some upside surprises in China’s 3Q GDP report would certainly be welcome. Having failed to rise above the psychological 80 level on November 10, the benchmark DXY (USD) index has since fallen to 79 yesterday, and looking to test the support at 78.604, the lows seen on Sep 14 and May 1.

To sustain the weak US dollar trend, the official parity fixing for USD/CNY need to join their onshore/offshore market rates in falling below end-2011 level to post year-to-date appreciation. Since October 10, the parity rate fell steadily from 6.3449 to 6.3028, converging on the end-2011 rate of 6.3009.

While real GDP growth is expected to moderate to 7.4% YoY in 3Q12 from 7.6% in the previous quarter, there could be upside surprises from September’s industrial production and fixed asset investment data, as witnessed in other economies.

More importantly, the market is looking for guidance that 3Q12 may be the bottom of the current decelerating growth cycle. And Premier Wen Jiabao was quoted yesterday that 3Q12 GDP was relatively good and that China was on track to achieving its 7.5% growth target for 2012.

EUR/USD will also need to sustain its rally above 1.30. For now, the euro’s recovery looks promising. The 10-year government yield in Spain fell 33.8 bps to 5.467% in overnight markets, its lowest level since April, on signs of Spain edging closer towards a bailout.

For markets, the bailout is not about the size, but that it activates the European Central Bank’s (ECB) Open Market Transaction Scheme, which in turn, ensures that Spain continues to have market access to funding.

For now, this is sufficient to satisfy markets that a euro break-up is, in the words of Fitch yesterday, highly unlikely. While Fitch still considers the risk of a Greek exit as material, there are hopes that the troika and Athens may have reached an agreement on core measures to restore the momentum of reform in Greece.