Singapore Tightens, Will China Follow?

Singapore announced that it had effectively tightened its monetary policy by revaluing its currency by approximately 1.3%. Will this have a domino effect?
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By Omer Esiner of Travelex

For the first time in recent memory, developments out of Greece slipped off the front page and took a back seat to news of currency devaluation out of Asia. Singapore announced that it had effectively tightened its monetary policy by revaluing its currency by approximately 1.3%, propelling it to a 20-month high against the U.S. dollar. Though not the devaluation announcement most had been hoping and lobbying for, the move by Singapore's central bank reinforced expectations that the Chinese would follow suit.

On that front, the Chinese continued to maintain its mantra that any decision to revalue would be made internally and not as a result of pressure from external parties; i.e., the U.S. The move was also interpreted as a veiled message that Asian nations, such as Singapore, may feel that the worst is over with respect to the global downturn and that a return to global growth could bring unwelcome inflationary pressures to their shores.

Closer to home, U.S. monetary policy was also in the news, as a non-voting member of the Fed's Board of Governors raised the prospect of the Fed dropping from it post-meeting statement the words "prolonged period" when discussing its intentions to maintain the historically low interest rate levels in the U.S. Chairman Bernanke will be testifying in front of Congress today and could provide further clarity.

As we have grown accustomed to when risk ramps up, the Japanese Yen fell and the high-yielding antipodean currencies of Australia and New Zealand rallied overnight.

The Canadian Loonie powered higher in the wake of strong domestic economic data as did the British Pound. Sterling remains undermined by the fact that no clear leader has pulled away from the pack ahead of the upcoming elections.

In addition to Chairman Bernanke's testimony, CPI and consumer spending data out of the U.S. should provide an indication of U.S.'s economic health.

CNY

: Obviously, with respect to revaluation, the 800 lb panda bear in the room remains China. It has maintained that, should it opt to revalue, as many hope and believe that it will, that will be done at a time of its choosing, to a degree of its choosing and not as a result of foreign pressure. President Obama, in a statement following this week's traffic-snarling nuclear summit in Washington D.C., stated that there had been no timetable set forth in discussions with the Chinese for such a move. China's President Hu echoed that statement.

It should be noted that in yesterday's trade balance figures, which showed a worse-than-forecast widening of the U.S. trade deficit at the headline level, the deficit with the Chinese actually narrowed in February.

CAD

: The Canadian Dollar is benefiting this morning from renewed optimism that our neighbors to the North may be in a position to hike rates before any move domestically. Yesterday's trade figures, coupled with solid housing data and business sentiment reports, are leading many to believe that higher rates may be in the offing sooner rather than later.

USD

: U.S. March CPI came in at a slightly cooler-than-forecast +2.3% and Retail Sales posted its largest rise since November. However, the dollar is off on the news, which indicates to many that perhaps the Fed can in fact stand on the sidelines a bit longer. We await Chairman Bernanke's testimony later this morning.

SGD

: The buck eased pretty much across the board after Singapore announced that it was immediately devaluing its currency by approximately 1.3%. The Singapore Central Bank, which only meets twice a year, does not use interest rates to manage monetary policy rather they manage the level of its currency, unlike other central banks around the world. On the heels of recent scorching domestic growth data, it opted to revalue now.

Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.

You can view his daily reports, recording briefings, and quarterly reviews posted

here

. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.