The US dollar has rallied against major currencies.
IG Markets Singapore said:
The Singapore dollar lost ground to its US equivalent as traders seek the safety of the greenback.
With the US presidential election looming tomorrow it has led to cautious and jittery trading with the outcome difficult to predict.
The USD has rallied against major currencies amid the uncertainty. The local currency trades at $1.2237 against the greenback this morning.
Caution and tight trading is likely to remain the theme this week as we await the results for the White House’s next incumbent.
The aftermath is also likely to subdue trading as FX traders attempt to decipher what it means for currencies, especially if Romney wins given his stance on China being a currency manipulator.
DBS Group Research meanwhile noted:
Over the weekend, the G20 Summit maintained its view that the US fiscal cliff and the Eurozone crisis remained the biggest headwinds for the global economy. Financial markets, however, have drawn comfort from recent data that America and China may be stronger than initially feared.
Overall, hope has returned but it isn’t enough to eclipse the uncertainties. US dollar has regained some lost ground, but we believe that the underlying tone still favors weakness longer term.
The immediate uncertainty is the US presidential election on November 6. Polls indicated that the outcome is too close to call. Overall, US businesses favor Republican candidate Mitt Romney over incumbent President Barack Obama.
For emerging markets, a Romney win would be negative in two regards. Romney pledged that he would label China a currency manipulator and that he would not support another term for Fed Chairman Ben Bernanke.
For currency markets, the resumption of yuan appreciation and QE3 have been two important reasons for renewed US dollar weakness against emerging Asian currencies since the Fed’s symposium at Jackson Hole.
On the bigger picture, the next administration will still need to consolidate US fiscal finances. This will require the cooperation of a large surplus country like China to step up to boost domestic demand.
Politics will also loom large in China who will be holding its 18th congress after the US elections to usher in its new leaders for the next ten years. They are expected to take yuan internationalization reforms to the next crucial stage – capital account liberalization.
Economic policies will target services as the most important sector to boost domestic demand. This will be accompanied by financial reforms that will initially foster greater yuan use for direct investment, and much later for portfolio investment. More will probably be unveiled at the National People’s Congress in March 2013.
As for central bank meetings this week, only the Reserve Bank of Australia meeting tomorrow will attract attention. The Bank of England and the European Central Bank are expected to keep policy unchanged.
In Asia, the same can be said for Malaysia and Indonesia. The RBA is expected to cut its official cash rate by 25 bps to 3.00% but it remains to be seen if this will be enough to undermine the appreciation pressure on the Australian dollar.
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