Singapore dollar trades at $1.245

Virtually unchanged, the local currency is expected to remain in a tight range against the US dollar.

IG Markets Singapore said:

The Singapore dollar is virtually unchanged against the greenback as the currency pair seems to have caught the lacklustre bug from equity markets.

There was very little action on global markets yesterday, apart from Japanese GDP data which came in softer than expected.

With no major events this week the local currency may remain in a tight range against the US dollar. This morning it trades at $1.245.

Markets have hit year-highs recently but are now in a consolidation phase. Currencies markets are likely to do the same.

There is a calm about risker assets. The Vix, the so-called fear gauge, is down at 13.7% - its lowest level since 2007.

This is a good sign for risk-on mentality and traders taking a punt on Asian currencies.

However, the poor Japanese economic data may put a cap on such gains as traders worry about the health of the Asian region.

DBS Group Research meanwhile noted:

Market sentiment is a little weaker as profit-taking set in on the rally that started in June.

The chief barometer of risk appetite in currency markets, the Australian dollar, has retreated against the US dollar, from the upper limit of its two-month old ascending price channel, currently located between 1.0381 and 1.0615 today.

The other two non-European currencies rated triple A by all three rating agencies, the Canadian dollar and the Singapore dollar, have also stopped appreciating.

Interestingly, the caution that set in yesterday coincided with the return of German Chancellor Angela Merkel from her holidays. Her deputy parliamentary leader, Michael Fuchs, warned yesterday that Germany would veto further aid to Greece unless Athens fulfills its reform obligations under the bailout packages.

Unfortunately, Greece’s advance estimate showed its real economy contracting by 6.2% YoY in 2Q12, following a 6.5% fall in the previous quarter. Given that this is significantly worse than the 4.7% decline predicted by the European Commission, Greece is off track to meeting its budget deficit target.

The Greek coalition government currently has so far only managed to agree to meet only EUR6.5 bn out of the EUR11.5 bn austerity plan.