Currency Briefing - what you need to know for Wed Feb 29, 2012

The Singapore dollar was up 1.2478 Tuesday night.

IG Markets Singapore said:

Traders appear to be sitting things out for the time being waiting for the ECB to launch its latest three-year cheap loans to European banks, which will have a knock-on effect for world currencies.

The Singapore dollar has gained slightly on the US dollar, up 1.2478 in late trading last night. It is still range-bound within a zone of 1.2475-1.2600 which is likely to hold in the short-term despite a slow-moving upward trend.

The ECB Long-term Refinancing Operation (LTRO) kicks-in tonight in Europe and markets will be watching this closely, monitoring its effects on risk assets, not just the euro.

The US is in a buoyant mood as its benchmark Dow Jones Industrial Average broke through the 13,000 level last night and oil prices retreated slightly.

Singapore government bonds also seemed to be waiting for more clues from the ECB cheap liquidity with the yield on 10-year bonds little changed. Yields on two-year bonds were unchanged at 0.28%.

GFT, on the other hand, noted:

The U.S. dollar traded lower against all of the major currencies with the exception of the New Zealand dollar. The big story in the U.S. today (Tuesday) was the rally in equities.

For the first time since May 2008, the Dow Jones Industrial Average closed above 13,000. This may be a low volume rally but it is a rally nonetheless that will serve as a strong psychological boost for investors.

This morning’s (Tuesday) U.S. economic reports were mixed with consumer confidence rising and manufacturing activity in the Richmond region accelerating.

Durable goods and house prices on the other hand weakened but that did not put any dent into the risk rally. Consumer confidence rose to its highest level in a year, which shouldn’t be surprising given how well stocks are doing.

The improvements in the labor market also contributed to the rise in sentiment and so far, the warmer weather has eased the pain of higher oil and gasoline prices. Manufacturing activity on the other hand continues to lead the U.S. recovery with consistent improvements seen across the nation.

RBS meanwhile reported:

In recent discussions with investors we found that rather than cover short EUR exposure as US equities and risk-oriented assets surged during the early stages of 2012, investors preferred to maintain core short EUR exposure and hedge by buying growth oriented currencies.

As a result, if rising oil prices start to dent the outlook for global growth oriented currencies, then EUR short covering may begin in earnest. With the best news about the Greek bailout and the 3-year LTRO likely behind us, we still expect EUR weakness to develop and we currently hold short EUR exposure vs. the CAD.

We have revised up our forecast for USD/JPY as the BoJ's surprise easing / CPI inflation goal, deteriorating macroeconomic fundamentals and, potentially, MoF/BoJ intervention have increased the chances that USD/JPY holds above 80 over the medium term.

A lack of US rate support, however, should cap significant USD/JPY gains.