Overnight US Stock indices traded lower, pushing USD/SGD higher due to Risk Off sentiments which also saw USD/JPY traded lower. Early during today’s Asian trade, RBA’s negativity made matters worse and dropped AUD lower, bring other Asian currencies along for the ride. As a result, USD/SGD pierced above 1.24 for the first time this week, but the move was thwarted by the Chinese Government with their surprisingly low fix in USD/CNY, resulting in a sudden bout of strength for Asian currencies against the Greenback.
Reasons for such a strong Yuan fixing is unclear, as PBOC almost never reveal its intentions transparently. Analysts point at the tremendous positive Trade Balance data as possible reason for a stronger Yuan, while others believe that inflation may be creeping up on China. Regardless of the reason, at least for the purpose of USD/SGD, we should ask whether risk trends will reverse on the back of Chinese econs or will it still continue to stay in “aversion” gear?
Initial take is that we should not be too overly concern over the Chinese Trade Balance data as it is based on holiday month (Jan) which has the tendency to distort figures. Furthermore, fears of Chinese economic meltdown has been overly exaggerated, with the recent HSBC PMIs suggesting that China is doing fairly well. Despite so, Asian stocks are trading marginally higher, with US Futures doing the same. Hence if “risk-on” sentiment carries on, a scenario which USD/SGD back towards the rising trendline should not be ignored. This go together well with what Stochastic is telling us, with a recent top in place with reading under 80.0 after Stoch/Signal line crossing in the Overbought region.
Longer term USD/SGD is still on the rise due to concern over Singapore’s economic health. Price is trading above the 1.233 ceiling and we are riding on the same bullish momentum that brought USD/SGD higher from Dec 18th to Jan 26th. From the broader perspective, 1.24 may not be as important as 1.243, as that was the previous swing high and the support back in Aug 2012. A break above 1.24 in the shorter term encourages price to push to 1.243, with potential bullish acceleration towards 1.255 if 1.243 is broken.