All major currencies weakened against the greenback.
IG Markets Singapore said:
Asian currencies faced a choppy night after Obama secured a historic second term in the White House.
After the dollar weakened, as Obama means QE3 will likely continue putting pressure on USD, Asian currencies gained some territory.
But this was soon snapped as it means business as usual and the inevitable head-to-head between the US government and Congress over the “fiscal cliff” of tax hikes and spending cuts which kick in next year.
This saw Asian currencies reverse the gains they made. However, most of this action was lost on the Singapore Dollar as it remained in a tight range against the greenback despite the overnight volatility.
The Singapore dollar sits at $1.2242 this morning as the dust settles on the US elections and FX traders turn to the more predictable Chinese change in leadership process which begins today.
BK Asset Management meanwhile noted:
President Obama's victory and the Greek vote for more austerity failed to lift the financial markets. Currencies and equities traded sharply lower with the S&P 500 down more than 2% and all major currencies weakening against the U.S. dollar.
The U.S. Presidential election may be behind us but fiscal uncertainty remains in Europe and while Greek leaders made a difficult but important decision for more austerity, the ECB's concern about growth in Germany cast a dark cloud over the financial market.
Starting with tonight's 18th party Congress, China will be announcing a major leadership change that will hopefully succeed where Obama and Greece failed in lifting risk appetite. Although China is under a one party rule, this once in a decade transition is nonetheless a historic event.
China's new leaders will take over the country at a very a delicate time for their nation and the global economy. While China has been growing for a few decades, more steps need to be taken to solidify the economy and ensure stability.
If the leadership change is accompanied by any major announcements in policy, it could be just the type of reform that the market needs to renew its rally. Xi Jinping is widely expected to succeed Hu Jintao and officially take over the role at the annual meeting of parliament in March.
In all likelihood, the leadership change will pass without triggering any major volatility in the market, but we are hopeful that positive comments out of China's biggest political event will help to lift risk appetite and stem the slides in currencies.
DBS Group Research, on the other hand, reported:
Wall Street fell after US President Barack Obama was elected to a second term. Attention quickly shifted to the US fiscal cliff. The Dow Jones Industrial Average closed 2.4% lower yesterday but still held above the 13,000 level.
Risk aversion also gripped currency markets. Both EUR/USD and USD/JPY fell again to below 1.28 and 80 respectively. AUD/USD traded below 1.04 this morning after hitting an intra-day high of 1.0480 yesterday.
The main uncertainty stemmed from one simple fact. The US House of Representatives is still held by the opposition Republicans while the president’s Democrat Party retained control of the Senate. There are fears that US lawmakers will repeat the same political divisiveness over key fiscal issues that led Standard & Poor’s to remove America’s triple-A debt rating in August 2011.
The other two rating agencies – Moody’s and Fitch – warned, immediately after the election outcome, Congress to act quickly to lift the federal debt ceiling and to deliver a credible fiscal consolidation plan.
On a positive note, US lawmakers may have learnt from their mistake of August 2011. Both the White House and House Speaker (Republican) John Boehner signaled their readiness to negotiate a budget deal to avoid the fiscal cliff. There is a risk of underestimating how conciliatory the two major parties can get to avoid losing another triple-A rating.
Note also that the US economy is in a stronger position today than after the 2010 midterm elections. The unemployment rate is not above 9% but below 8%. The NAHB housing market index recovered to its pre-2008 crisis high.
Most of the weakness is in the manufacturing sector, which to some extent, is attributed to businesses holding back investment spending due to fiscal cliff uncertainties. Naturally, removing this uncertainty will be viewed as positive for the overall economy.
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