Traders flee into safe haven currencies

The greenback strengthened to $1.2244 against the Singapore dollar amid the aversion to risk assets.

IG Markets Singapore said:

Another rough night for Wall Street saw traders flee into safe haven currencies like USD at the detriment of risk currencies.

The greenback saw huge inflows as US corporate earnings continued to disappoint across the board causing equities to tumble.

The US dollar strengthened to $1.2244 against the local currency amid the aversion to risk assets.

This morning we see flash manufacturing PMI data from HSBC which could determine the course for USD/SGD today. China bears are queuing up for this one which is expected to show further weakening in the world’s second largest economy.

But the game-changer for the currency pair could happen tomorrow with US GDP figures for Q3 released.

DBS Group Research meanwhile noted:

As we head into the last week of October, investor sentiment has taken a turn for the worse into Halloween. This time, the focus is on America. The Dow Jones Industrial Average fell by more than 200 points in each of the two out of last three trading sessions.

The sell-off or profit-taking, depending on whether you consider yourself a bear or bull, resulted from a slew of disappointing earnings and weaker guidance by corporate America. Apple Inc also disappointed with the pricing of its long-awaited iPad mini; its stock price fell 3.3% yesterday.

Interestingly, not too long ago, many were forecasting a new record high for US stocks. For example, the S&P500 index hit its highest level at 1474.51 on September 14, one day after the Federal Reserve announced QE3, not far from its all-time high of 1576.09 seen in October 2011. At this level, the index has retraced almost 89% of its losses incurred during the 2008 global financial crisis.

On the US political front, the focus is not only on the US presidential elections on November 6, but also on policymaking thereafter. The stock market believes that the Republican presidential candidate, Mitt Romney, is more business friendly than President Barack Obama.

Investors were initially hopeful of a Romney win after a strong showing at the first debate. With Obama regaining lost ground in the last two debates, polls are indicating that the election is either too close to call, or that Obama will secure a second term.

Regardless of who wins, US lawmakers must still deal with the coming fiscal cliff, which the IMF, CBO and Fed warned could result in another recession if the issue remained unresolved. By that, US lawmakers would allow the tax cuts to expire and the automatic spending cuts to kick in.

FYI, the budget deficit for FY ending September 2012 amounted to USD1.089 trillion, exceeding USD1 trillion for the fourth straight year. US Treasury Secretary Timothy Geithner is said to be leaving his position by the end of the year.

The New York Times also reported that Fed Chairman Ben Bernanke would probably not seek a third term when it ends in January 2014. But that’s still far away. As for today, the FOMC meeting today will remind markets that the Federal Reserve will be as supportive as ever with QE infinity and its pledge to keep rates low into at least mid-2015.