Against a backdrop of low inflation and slower growth, the surprise easing in Singapore has again brought the focus back onto the currency tool. The Monetary Authority of Singapore has reduced its SGD NEER slope to zero, a policy last used during the financial crisis in 2008. As well as the weaker growth backdrop, specifically citing milder US growth than anticipated and a moderation in growth in Japan, Europe and China, the decision was also likely in anticipation of further CNY weakness. In relation to this, the PBOC has also set CNY weaker via its fix to 6.4891 from 6.4591 yesterday. Note that the recent period of USD weakness and risk supporting high-yielding currencies has seen CNY depreciate by 5% on a trade-weighted basis since August. The market interpretation of both policy measures appears to be negative for other Asia currencies, such as MYR and KRW. Central banks pushing back against currency strength have provided a boost to Asian equities overnight. There remains room for monetary policy easing in the AXJ region, and any further easing measures should help to support risk around the world for a little longer, before attention turns again to a strengthening trade weighted EUR and JPY. The impact on the traditional risk-on/risk-off currencies within the G10 is less apparent for today as local data (stronger AU employment and RBNZ rate cut expectations rising) and political developments (EU referendum) are dominating the currency movements. We stay bearish on GBP and are becoming more cautious on CAD longs, and still initially target the 117 level for the Fed’s broad trade-weighted USD. The Asia currencies, CNY and SGD, form 22.2% and 1.6% of the ECB's EUR TWI., respectively Their depreciation, together with the Fed's broad trade-weighted USD falling 5% from its January highs, has allowed the EUR TWI to rally but not by a large amount, up 1.9% since the March 2 low. We are seeing increasing evidence from ECB members that the focus on EURUSD has reduced, but it is more about whether EM FX weakness is anticipated, pushing the EUR TWI higher. Yesterday Constancio suggested that negative rates were essentially a "standard" policy tool and dismissed the notion that they were designed to influence exchange rates. A break below 1.1178, the 50DMA in EURUSD, will likely add further near-term downward pressure. Price action confirms the fundamentals, USD Index is pushing through resistances as easing in rates spread across the world. EM currencies have given some gains back from the recent rally and are now in a neutral state. Commodities have lost some ground and even with relative strength of AUD and NZD, attention shifts to local rate drivers. GBP weakness is the only decent trend in the morning but USD strength is likely to rule the rest of the day.
