Currency Briefing - what you need to know for Fri March 30, 2012

The Singapore dollar currently sits at $1.2574 for every US dollar.

IG Markets Singapore said:

As the first quarter of 2102 comes to a close the Singapore dollar continues to remain rangebound against the Greenback. It currently sits at $1.2574 Singapore dollars for every US dollar.

Risk sentiments has dampened this week as traders question the recovery of the US economy and the knock-on effects on the global economy. These jitters have seen outflows from Asian currencies which had weakened against the greenback.

But the Singapore dollar has proven resilient and managed to keep on track with its gradual appreciation.

The game-changer could be the Monetary Authority of Singapore’s policy meeting which takes place next month. However, it is expected to stick with its policy of letting the local currency rise while inflation still remains an issue.

The US dollar had broken through the $1.26 level in trading but slipped back down as this is proving to be a key level of resistance in the short-term.

RBS meanwhile reported (for 29 March 2012 trading):

Currencies once again traded broadly with equities during another very quiet US session. The equity market declined during the morning but recovered its losses after the European session closed, and the higher-beta currencies strengthened versus the USD as US equities rebounded.

Japanese inflation will likely be the key data release overnight after the BoJ set an inflation goal of 1.0% in February. RBS is above the consensus expecting core inflation to print +0.1% y/y in February.

USD/JPY may fall on stronger-than-expected core inflation as the market could price out additional easing expectations by the BoJ in that scenario. But we expect the trend in inflation to remain subdued.

The key inflation data point over the next month will be the BoJ's outlook report which includes revisions to the inflation outlook and a downward revision may be seen as a catalyst for further easing. Still, a downward revision to inflation forecasts may not be enough to lead to further easing, especially if the Tankan survey in 1Q (released 1 April) improves in line with our expectations.

Canada announced its budget today and while nothing in the budget announcement was particularly surprising, the smaller than expected budget deficit in 2011-2012 is a modest positive for the CAD.

GFT, on the other hand, noted (for 29 March 2012 trading):

Friday is a big day for the EUR/USD with 2 important events that could affect how the currency trades for weeks to come. The first and foremost will be the Eurozone Finance Ministers meeting. Risk aversion drove the EUR/USD lower today but the prospect of a larger firewall that could lift investor confidence and shield the region from contagion prevented a steeper slide in the currency.

Eurozone finance ministers are gathering in Denmark this weekend to discuss boosting the rescue fund and an announcement is expected before the end of the meeting. Based on the draft statement obtained by Bloomberg News, the rescue fund will increase to EUR940 billion. Anything short of that will hurt the euro.

The second event risk for the EUR/USD on Friday will be Spain’s 2012 Budget. Like the Greeks, the Spaniards have taken to the streets to oppose tough austerity measures aimed at bringing down the deficit. Spain is required by Eurozone Finance Ministers to bring their deficit-to GDP ratio down to 5.8 percent for 2012 and 3.0 percent for 2013 from 8.5 percent of GDP in 2011.

As you can imagine, harsh cuts will be needed to meet these deficit targets which will be made even more difficult with growth expected to slow. If Friday’s package of spending cuts do not appear credible, the EUR/USD will suffer as Spanish bond yields and credit default swap spreads spike higher.