Singapore dollar trades at $1.2244

The local currency could face pressure amidst poor export numbers.

IG Markets Singapore said:

The Singapore dollar has remained unchanged against the greenback last night despite a shift away from risk-on trading.

Traders are still trying to squeeze out all they can in risk assets after the QE3-driven rally but profit taking has seen currencies, equities and commodities slip off their recent highs.

The local currency is still clinging to its position on the $1.22 handle, having hit a one-year high against the USD last week.

This morning it trades at $1.2244. But the Singapore dollar could face pressure after yesterday’s poor export numbers.

With trade to Europe slowing, the MAS may also slow its appreciation of the local currency against the greenback to give exports help in offloading their goods.

DBS Group Research meanwhile noted:

EUR/USD has tried and failed to rally above 1.3170 in the last two trading sessions, yesterday and Friday. Commodity prices, as measured by the CRB index, fell 2.0% yesterday. There were only two days this year – June 21 and July 6 – when they fell by this much in a single day.

Crude oil prices (Nymex) also fell by 2.4% yesterday, the largest since July 23. This day was interesting because EUR/USD was close to testing 1.20, and probably would have broken below this psychological level if not for European Central Bank (ECB) President Mario Draghi’s timely pledge to do whatever it takes to preserve it.

Since then, the currency pair recovered more than 90% of its losses from the May-July sell-off triggered by political backlash against austerity in Eurozone. The inability of euro to rally could be linked to the rise in Spanish government bond yields in the past two sessions.

Overall, the ECB’s Outright Monetary Transactions (OMT) Scheme is only viewed as one half of the original plan to save the euro. To allay worries over the ECB’s efforts encouraging moral hazard, struggling EU nations, especially Spain, are urged to demonstrate their commitment towards austerity and reforms.

In this regard, Eurozone economies must still endure more pain before they can gain from their structural reforms. The same realization is also dawning in the US that the Fed’s QE3 is no panacea for the economic slowdown. In fact, debate seems to be shifting to the looming fiscal cliff into the November US president elections.

In summary, monetary policy expectations had been good for financial markets. Unfortunately, after the easy monetary part, comes the hard part – fiscal consolidation. So, give one, take one, back to square one.

In this regard, expect markets to be more sensitive to data. We’ll be paying attention to whether they are looking out for more bad news than good tidings.