Singapore dollar relatively unmoved

This as risk currencies took big gains out of the greenback.

IG Markets Singapore reported:

The SGD has started the week on a softer note against the greenback, with the pair now trading above Friday’s close of 1.225.

The SGD had seemed relatively unmoved at the end of last week as many risk currencies took big gains out of the USD. The main focus for traders was the euro following on from Draghi’s comments in the first ECB press conference of 2013, with the eurozone fortunes for the year ahead painted in a rosier light than many had initially forecast.

The other continuing theme has been JPY weakness, where the rhetoric from politicians on weakening measures continues to fuel the currency’s unrelenting decline.

SGD fortunes seem to be stuck in the middle with modest gains against the yen and sideways moves against the USD.

Fresh focus could be seen on the SGD as at the end of last week the government released its latest wave of property-cooling measures in an attempt to bring down property price and curb speculation.

These measures, along with any adjustment to the permitted trading bands, will be the key drivers towards sentiment on the SGD in the first quarter of 2013. The local currency appears to be one of the least volatile, having traded in a tight 200-point range against the greenback since mid-September 2012.

DBS Group Research noted:

Risk appetite requires two things to maintain its upside momentum this week. The Fed must reassure on its QE3 intentions while China must reaffirm its growth recovery story. Together, this should continue to keep the US dollar weak against the Chinese yuan and Asia ex Japan currencies.

Fed Chairman Ben Bernanke is scheduled to speak in Michigan at 0500 hours Singapore time tomorrow. Most want Bernanke to assure that QE3 would not end prematurely as suggested by the latest FOMC minutes. Fed Vice Chairwoman Janet Yellen had, a week ago, said that the Fed would use the interest on excess reserves when exiting its ultra-easy policy.

Put simply, the Fed is still nowhere close to raising Fed Funds Rate in 2013. We would also be interested to know if Bernanke views the fiscal deal achieved at the start of the new year was enough for the US economy to avoid a double-digit recession.

For now, the market is content that the amount of liquidity provided by QE3 outstrips the drag from the fiscal cliff. Outside of the US, Bernanke may touch on currency wars. He may probably urge emerging countries, namely China, to allow currency appreciation to offset inflationary pressures from inflation.

All eyes will be on China’s GDP report on January 18. The current rally in global markets was triggered by China’s solid double-digit export growth data for December. Consensus is looking for real GDP growth to reaccelerate to 7.8% YoY in 4Q12 and affirm that the 7.4% YoY posted in 3Q12 was the bottom for the current slowdown.

There is also optimism that China’s growth will also improve to above 8% in 2013 from a projected 7.7% in 2012. Against this background, the central bank has become vigilant against inflation again. CPI inflation has risen from its low of 1.7% YoY in October to 2.5% in December, its highest levels since last May. Not surprisingly, the official parity fixing for USD/CNY fell to 6.2712, below the 6.2721 low seen in May 2012.