Currency Briefing - what you need to know for Tues Feb 28, 2012

There was weakness in the local currency amidst concerns from the G20 meeting.

IG Markets Singapore said:

During the Asian trading session yesterday we saw weakness in the Singapore Dollar. This was attributed to concerns from the G20 meeting and had meant that investors’ focus was there and the SGD slipped lower to trade around the 1.26 level against the greenback.

Overnight the Singapore Dollar clawed back some of the losses posted in our session and is now trading at 1.2550 against the US dollar.

Local analysts have suggested that with the lack of local drivers for the currency we are likely to be guided by the ongoing eurozone issues, and how the market sentiment is guided to the USD in general terms. That said, while risk currencies such as the euro and sterling lost ground to the US dollar overnight, we have gained.

AUD and JPY also managed to post gains against the USD so perhaps this development which has the SGD moving in line with these currencies will suggest that the direction of the Island State’s currency is more likely to be linked to our regional APAC cousins, rather than the fate of more distant European currencies.

GFT, on the other hand, reported:

The U.S. dollar traded higher against all of the European currencies but weakened against the Japanese Yen and comm. dollars. The big story today (Monday) was the S&P 500 which rose to its highest level since June 2008 intraday.

The persistent rise in equities has been a big driver of risk appetite but the lack of volume leads us to wonder how much appetite there really is for risk. U.S. economic data has been improving which has helped to support the rally but the degree of improvements, particularly when it comes to the the labor market and consumer spending has not been significant enough to validate the strength of the rally.

Easy monetary policies and abundant liquidity have been the primary drivers of the rally and the prospect of additional liquidity courtesy of the European Central Bank has compounded the move in equities. However with oil prices at elevated levels, the rally may be unsustainable.

RBS meanwhile noted:

Equities and growth oriented currencies rallied from off their morning lows during the NY session as US data rose more than expected and oil prices slipped, easing growth concerns.

Indeed, today (Monday) was a strong day for short EUR / long Commodity bloc, as both EUR/AUD and EUR/NZD are close to completing bearish daily reversals. USD/CAD has bounced around its 200-day moving average and the CAD appears to have lagged rising oil prices.

Following the short-squeeze in the EUR over the past week, EUR/CAD has surged to nearly 4 cents above our short-term fair value estimate and we recommend establishing short EUR/CAD exposure at 1.3430, targeting 1.29, with a stop on a two-day close above the 200-day moving average, currently 1.3704.