In choppy waters


The recent weeks have been some of the most volatile ones as the fear of the European financial crisis ripples through the economies of the world, resulting in a massive flight to safety to the USD and funds being drawn out of troubled countries, pushing up the USD and triggering bank runs. The rise in the USD depressed commodity prices, including that of gold, though as at the time of writing this, gold just shot up about US$50 (3%) on news of US jobs data being weaker than expected, thus sparking speculation of possible monetary easing to come. So it seems gold is seen as a safe haven again relative to the USD.

With oil prices down significantly (reads low inflation) and unfavourable jobs data, whom the Feds chief mentioned as a criteria for introducing more accommodation, it does seem like we are getting set for QE3. Things has to look good in an election year.

One can imagine that the magnitude of funds movement happening currently must be quite sizable, given that the rise in the USD/SGD rate was fast and furious, going from 1.24 to almost 1.3 within a month, despite MAS’s plan to allow SGD to appreciate. This is of course due to the fact that most, if not all currencies have fallen against the USD, so SGD moves in tandem. Interestingly, SOR has fallen in the past week (from 0.419 to 0.307) despite the steep increase in USD/SGD. Going by how SOR is supposed to be derived, this should mean that USD borrowing rates have come down.

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