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Economy of Southeast Asia : Singapore Dollar Tumbles After Central Bank Shocks Market

By Tajuddin
Jan 28th, 2015
Singapore Dollar tumbles

Singapore Dollar tumbles

Singapore (Bloomberg + DIPLOMAT.SO) – Singapore’s dollar tumbled after the Asian nation unexpectedly eased monetary policy, highlighting the divergence among central-bank strategies before a Federal Reserve meeting that concludes today in Washington.

Measures of volatility have jumped in currency markets this year as central banks from Canada to Switzerland roiled markets with surprise policy moves. Singapore’s dollar slumped to the lowest since 2010 after its Monetary Authority said it will seek slower appreciation against a basket of currencies. Australia’s dollar rose after a report showed the country’s underlying inflation accelerated. China’s yuan declined to a record discount against the central bank’s reference rate.

“It’s putting into investors’ minds that any central bank that is dovish can suddenly turn more dovish,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “It’s almost a paradigm shift in how we think of rates policy. We don’t expect any major changes to the Fed’s statement tonight but the market is about 50/50 — whatever the outcome we may get a reasonably dramatic move.”

Singapore’s currency declined 0.9 percent to S$1.3511 per dollar at 11:51 a.m. in London, the weakest since August 2010, according to prices compiled by Bloomberg. Realized one-month volatility on the currency jumped to 6.38 percent, the highest since July 2013.

The U.S. dollar appreciated 0.1 percent to $1.1369 per euro, after weakening 1.3 percent the previous day, the most since Oct. 15. It reached $1.1098 on Jan. 26, the strongest since September 2003. The yen was little changed at 117.84 per dollar and strengthened 0.2 percent to 133.95 per euro.

Unscheduled Statement

The Singapore dollar weakened against all of the 16 major currencies after the MAS, which uses the currency as its main policy tool, announced its decision in an unscheduled statement Wednesday. It also cut the inflation forecast for 2015, predicting prices may fall as much as 0.5 percent.

JPMorgan Chase & Co.’s global gauge of currency price swings climbed to as high as 11.68 percent this month, the most since June 2013, and was 10.65 percent today.

Former Bank of England Governor Mervyn King said in Tokyo earlier Wednesday that central banks and governments are becoming more and more strident in their determination to talk down their exchange rates.

King’s View

“Many countries today can see that they have taken monetary policy as far as they can go,” King said at the Tokyo Global Economic Forum. “Exchange-rate policy may now become an instrument of monetary policy.”

The Fed is forecast to leave interest rates unchanged at the two-day policy meeting that ends today, a Bloomberg survey of economists shows.

Policy makers have kept that goal in a range of zero to 0.25 percent since December 2008 to support economic growth. The chance of a interest-rate increase by the October meeting was 50 percent, futures data showed.

While the odds have reduced from 72 percent at the end of last year, it still shows investors foresee the Fed tightening monetary policy faster than other major central banks. In the U.K., forward contracts show investors aren’t betting on rate increases until at least the end of this year, while the European Central Bank last week announced it would start buying 60 billion euros of public and private debt a month between March of this year and September 2016.

“The divergence in monetary-policy direction is lending support to the dollar, which is leading other currencies,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo.

The Bloomberg Dollar Spot Index, a gauge of the currency’s performance against 10 major peers, was at 1,155.86. It closed at 1,161.42 in New York on Monday, the highest in data back to 2004.

Australia’s Dollar

The Aussie rose for a third day as the trimmed-mean gauge of Australia’s consumer-price index — one of the Reserve Bank’s preferred measures — rose 0.7 percent in the fourth quarter from the previous three-month period, beating the 0.5 percent median estimate of economists surveyed by Bloomberg News. The RBA targets an inflation rate of 2 percent to 3 percent.

The central bank holds this year’s first policy meeting on Feb. 3, while Reserve Bank of New Zealand sets rates Thursday in Wellington.

“There was talk of a rate cut next week, so the solid CPI numbers have significantly reduced that possibility, supporting the Australian dollar,” said Koji Fukaya, chief executive officer and currency strategist at FPG Securities Co. in Tokyo. “But it is difficult to expect the Aussie to keep supported especially against the U.S. dollar as the underlying strength of the U.S. dollar remains intact.”

Chinese Yuan

The Aussie jumped 0.2 percent to 79.50 U.S. cents, advancing from the 78.55-cent level reached on Monday, which was the least since July 2009.

China’s currency weakened to 6.2480 per dollar, according to prices from the China Foreign Exchange Trade System.

It touched 6.2488, more than 1.9 percent weaker than the People’s Bank of China reference rate and close to the daily divergence limit of 2 percent. The monetary authority raised the fixing by 0.13 percent Wednesday, the most since Dec. 8, to 6.1282.

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