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China Monetary Report Adds To G7 Speculation (CNY)

Friday, 09 February 2007 22:06:44 GMT  |  Richard Lee, Currency Analyst

• China Monetary Report Adds To G7 Speculation (CNY)
• MAS Lending Expansion Supports Session Speculation (SGD)

Hong Kong And China
Marking the end of a long and empty economic schedule for the week, today’s session was relatively a nonstarter.  With the G7 meeting commencing, traders were still weary of placing any real “bets” in the market on a fear of market shattering announcements over the weekend.  For Friday, the Chinese yuan continued on yesterday’s momentum trading to another record high against the US dollar.  Currently trading at 7.7475, the currency hit as high as 7.7415 on speculation that pressure will be applied on Chinese officials to enact a flexible currency regime in the near term.  The notion boosted the Hong Kong dollar in the overnight, already higher against the greenback on profit taking from the week’s losses.  Trading higher above the 7.8150 figure, the currency pair was under pressure in the overnight, now trading towards the close at 7.8138.  Incidentally, Chinese officials released their fourth quarter monetary policy report ahead of the G7 meeting commencement in Essen, Germany.  Statements were similar to previous reports as policy makers continue to support further appreciation in order to trim the widening trade surplus that has contributed to a record amount in foreign exchange reserves.  According to recent resources, the amount remains at $1.07 trillion.  The timing couldn’t be more perfect as Chinese policy officials continue to push focus on to the Japanese depreciation topic and away from the issue of their competitive advantage.  Rest assured, however, that although rising hype has been placed on the Japanese yen and the G7 meeting in recent days, the topic still looms and will likely help the currency to make higher highs in coming weeks.

Downside Overwhelming HKD
Rising to 7.8170 in the overnight, the USDHKD is under selling pressure at the weekend close, testing the 7. 8110 38.2% fib from 7.8026 to 7.8163.  Although bouncing back, the price action still has a negative bias with momentum indicators serving as bearish confirmations in the near term.  As a result, retests of the aforementioned 7.8110 support should not be precluded.  Subsequently, on a break, odds will open to a dip lower ahead of stalling at the 7.8095 50% fib from 7.8026 to 7.8163.  Upside potential does, however, remain on a break above the longer term 7.8163 spike high, purporting a move higher to the 7.8200.

Singapore Dollar
Profit taking combined with momentum on decreased banking requirements makes a USDSGD buyer sad…at least for now.  Following the seven session gain by the Singapore dollar, the currency pair was the subject of further profit taking for the second consecutive session.  The boost took the pair higher from the 1.5300 support level to currently trade at 1.5333.  Yesterday, the Monetary Authority of Singapore expanded the capital reserve requirement that banks are required to hold.  The move allows financial institutions the ability to expand their loan base, offering more money to a bigger and growing number of projects.  Subsequently, it also allows the banks to offer a one time special dividiend, which may in turn help to boost economic growth through consumption.  Either way you look at it, the policy change helps to boost expansion prospects through foreign investment in the region and is a definitive sign that expansion is well underway.  The idea is giving plenty of support for the Singapore dollar with momentum in the near term likely being decided by next week’s array of data reports.

Upside Remains For USDSGD
Tepidly bouncing higher off of the 1.5310 support figure, USDSGD has reached the tight range top of 1.5340 in the session, lending to a downside bias in the near term.  Momentum indicators are conducive with the notion, purporting a re-test of the 1.5315 hourly session spike low.  However, the longer term view allows a more bullish perspecitive.  Momentum indicators in the longer term are suggestive of a rebound on a close above the 1.5350.  The break would leave open the odds of a move higher to 1.5450, January 29th spike high with plenty of resistance capping further near term momentum.  However, should longer term double bottom support be broken, bidders may find reprieve in the 1.5287 January 3rd spike low.

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