Post-QE3 currencies have seen subdued trade with the notable exception of the USD/JPY.
IG Markets Singapore said:
The Singapore dollar is sitting in a very tight trading channel this week against the greenback with no clear catalyst to move the pair.
With risk assets seeing a period of consolidation post-QE3 currencies have seen subdued trade with the notable exception of the USD/JPY.
The local currency trades at $1.2240 this morning as it moves in a $1.221 - $1.225 tight range this week as traders take a breather from the exciting first half of the month.
China factory output data to be released this morning could shift the balance away from Asian currencies if it continues to show contraction.
Caution is the watchword across risk assets. Equities are subdued, gold is stuck in a tight channel while traders work out their next move.
DBS Group Research meanwhile noted:
Commodity prices retreated for a third day, effectively returning almost all of its QE-infinity gains accumulated between the Fed’s Jackson Hole symposium at end-August and the FOMC meeting on September 13. Crude oil prices have done more; they are now at their lowest level since August 6. So, what are commodities worried about?
The European Central Bank (ECB) announced its Outright Monetary Transactions (OMT) Scheme on September 6. A week later, the Fed delivered QE-infinity on September 13. The Bank of Japan (BOJ) increased its asset purchase program by a larger-than-expected ¥10 trillion yesterday. Let’s not forget that China also announced a stimulus program too.
Commodities are probably worried about the weakness in global demand. Past QEs had been associated with US dollar depreciation against Asian currencies.
Unfortunately, trade data in Asia continued to reflect weak exports to Eurozone and China, but still positive growth to the US. Only this morning, the Ministry of Commerce in China warned that for the rest of 2012, exports will be weaker than in the first eight months.
The same story of a delayed recovery was painted by the BOJ yesterday. In the major economies, QE1 and QE2, unlike today, did not face the kind of downward growth pressures from fiscal consolidation pressures in Eurozone, and soon, in the US.
Currencies are sitting on the sidelines for now. But they will start to become nervous if equities start worrying about what commodities are worried about.
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