The local currency is forecast to remain in very tight trading.
IG Markets Singapore said:
The Singapore dollar continues trading in a very tight channel and should remain so as we head towards the year end.
Along with other Asian currencies, there are still two big uncertainties preventing FX traders from taking big beets right now.
These include the fiscal cliff the US economy is heading towards unless a political gridlock can be broken. The other is the inability of Greece to secure fresh funding from the EU.
Both issues are adding to the uncertainty in global FX markets and are unlikely to see a clear and meaningful resolution anytime soon.
This has kept the Singapore dollar firmly hedged in at $1.2243 this morning, as it tread very cautiously around the greenback.
DBS Group Research meanwhile noted:
The market is worried about recession in the G3 economies. In the US, the Congressional Budget Office warned again that if US lawmakers failed to resolve the fiscal cliff, the US economy would enter into recession in 2013. Then again, optimists believed that a resolution would lead to a boom in the economy.
In Eurozone, a Bank of France survey saw the French economy headed into recession by the end of this year. BOF governor Christian Noyer, however, sought to play down the recession, but conceded that the economic performance was flat.
In Japan, some Bank of Japan members believed that the economy may have slipped back into recession. The central bank expanded its asset purchase program by JPY11 trillion at its last meeting on October 30.
Overall, the market is convinced that recession risk is higher in Eurozone and Japan, than in the US.
In China, however, expectations are building up for a stronger economy in the final quarter of the year. This was attributed to better-than-expected data posted for the month of October. Both industrial production and exports posted strongest growth rates since May. Growth in fixed asset investment and retail sales were highest since March.
The Chinese economy is showing signs of turning the corner ahead of the handing over of power to the new leaders this Wednesday. China’s new leaders will oversee, over the next decade, the transition of the yuan towards becoming a currency convertible on the capital account.
Over the weekend, the China Securities Regulatory Commission confirmed that it has agreed in principle to expand the Renminbi Qualified Foreign Institutional Investor (RQFII) plan by CNY200 bn from the current CNY80 bn limit.
For now, risk aversion dominates as long as G3 recession fears eclipse China recovery hopes. Risk appetite will become more balanced once the US changes side towards China. Despite the growth uncertainties, there were pockets of strength in the currency market.
The Korean won, Taiwan dollar and the Philippine posted new highs for the year. The Singapore dollar is also staying close to the year’s high, while the Thai baht remained resilient in a range. These Asian currencies have not lost hope in US and China holding up the global economy.
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