Singapore dollar remains at $1.2425

The US dollar is still preoccupied with the prospect of QE3 being introduced by the Fed, says IG Markets Singapore.

IG Markets Singapore said:

A memorable night for the eurozone crisis hasn’t worked its way into Asian currencies yet as the Singapore dollar remains unchanged against the greenback.

The ECB’s long-awaited policy meeting was a shot in the arm for risk assets and could signal the beginning of the end for the eurozone crisis.

This could see traders take on more exposure and move out of the safe havens such as the greenback and yen.

But for now the local currency remains at $1.2425 as traders digest last night’s news to buy short-dated bonds from vulnerable eurozone nations.

The US dollar is still preoccupied with the prospect of QE3 being introduced by the Fed.

Last night’s strong employment read would dash hopes of dollar-weakening QE3 happening in the short-term and therefore be a boost to USD against major currencies.

DBS Group Research meanwhile noted:

A host of Asian countries will be reporting their foreign reserves data today. They are Thailand, Singapore, Hong Kong, Malaysia and possibly Indonesia. They should be closely monitored for signs that the capital inflows returning into the region in recent months may become sustainable.

Since June, the US and Eurozone central banks had been reassuring global markets that they were vigilant against the Eurozone crisis evolving another 2008 global crisis. Amongst them, Thailand’s exchange rate probably best reflected the fluctuations in its foreign reserves best.

For example, the baht appreciated in January and February on the back of an LTRO-led global market rally, only to give back all gains and more during the EU-led sell-off in May. Since June, the baht has been moving up again with reserves.

Very clearly, the baht’s fortunes are intertwined with volatile capital flows in a global market held ransom by the Eurozone crisis. The Singapore dollar has been stuck in a range throughout this year, consistent with the consolidation of its foreign reserves in a flat range.

Until July, the same could be same for the Philippines. Foreign reserves broke out of its range and surged to an all-time high in July. Another new high in today’s August data could be a leading indicator of capital inflows returning into the region.

Hence, it will be interesting to see if Singapore will also be closer to witnessing new highs in foreign reserves in the coming months. Korea had earlier reported that its reserves also broke out of its range into record territory in August.

Finally, Indonesia’s rupiah has been falling with its reserves since last September, when the Eurozone crisis first started to dominate global markets. The central bank indicated this week that it had not intervene as much as it used to keep the currency stable, which in turn, probably explained why reserves stabilized in July.