Singapore dollar suffers as the greenback rallies

The US dollar rose to $1.2717 against the local currency.

IG Markets Singapore said:

Like most currencies the Singapore dollar has suffered as the US dollar rallied late on Friday after disappointing job figures were released.

A non-farms payroll data read of 80,000 dashed hopes that the Fed would launch a fresh round of quantitative easing measures.

This would have dampened the value of the greenback.

On this dollar-positive news, it gained on rival currencies and saw the euro hit a two-year low.

Against the Singapore dollar, it rose to $1.2717.

There is likely to be more risk-averse trading among currency specialists this week with a EU meeting of finance ministers taking place mid-week which is likely to see cautious trading.

BK Asset Management meanwhile noted (for 6 July 2012 trading):

The broken up holiday week in the U.S. did not stifle the volatility in currencies or equities.

With 3 central banks easing monetary policy and the U.S. reporting another month of weak job growth, the euro hit a fresh 2-year low against the U.S. dollar, 3 year low against the euro and a record low against the Australian and New Zealand dollars.

While the euro was hit the hardest, the Swiss Franc also experienced steep losses, falling to a 1 year low against the U.S. dollar and British pound. There are 2 main reasons for the euro's weakness and the first is risk aversion. Weak economic data and pessimistic comments from the central banks of Europe have made investors extremely nervous about the outlook for the global economy.

If things were bad in the first and second quarter, it now appears that central bankers believe the outlook will worsen in the third and fourth quarters. For this reason, every piece of bad news, including today's non-farm payrolls report has made investors more risk averse.

The second reason why the EUR/USD experienced such a large decline is because investors believe that the ECB will expand its balance sheet at a faster pace than the Federal Reserve. In plain English, this means that they expect the ECB to be more aggressive than the Fed in easing monetary policy.

Whether this is true remains to be seen but there is no question that this sentiment is contributing to the weakness in the euro. The next question is then how much lower can the EUR/USD go. At this point, there is no major support in the EUR/USD until the psychologically significant 1.20 level.

RBS, on the other hand, reported (for 6 July 2012 trading):

Even though a weak payrolls report likely bolstered the case for further Fed easing actions, the USD managed to strengthen versus most of the G10 into the weekend.

EUR/USD moved below 1.23 and AUD/USD spent much of the session around 1.02. The exception was the JPY, as USD/JPY remained lower following the data release. Risk-seeking was muted following payrolls as equities were down for the session.

Looking ahead, the central bank calendar is much quieter following a week where three central banks eased policies. The BoJ is the only G10 central bank decision in the week ahead and we think they could keep policy unchanged.

The June FOMC minutes and Fed speakers will be scrutinized as more easing seems likely in 3Q and the German constitutional court's decision will also be watched, as that ruling could hold up the implementation of the ESM.

Chinese data will also be very much in focus, with CPI, trade and 2Q GDP growth figures scheduled for the week. Australian labour data will also likely factor into expectations for future RBA policy.