Singapore dollar gains as central bank signals easing limit

]SINGAPORE] Singapore and New Zealand's dollars surged as the two nations' central banks signaled limits to their willingness to add stimulus to their economies.

Both currencies gained at least 0.6 against the greenback, outperforming other major counterparts. While Singapore's central bank said Wednesday it will reduce "slightly" the pace of appreciation in the local dollar, New Zealand's central bank Governor Graeme Wheeler said further easing will depend on economic data, which have been more encouraging.

"The market was definitely expecting a slightly more aggressive move" by Singapore's monetary authority, said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd in Singapore. "It should mean profit taking in long dollar-Sing positions." Singapore's dollar climbed 0.9 per cent to S$1.3900 against the US currency at 7:21 am in London, after reaching S$1.3889, the strongest level since Sept 18. New Zealand's dollar climbed 0.6 per cent to 66.83 US cents.

The Monetary Authority of Singapore eased monetary policy for the second time this year, as trade ministry data showed the economy narrowly avoided a technical recession, saying weakening prospects for global growth will pose "headwinds" in the coming months.

Mr Wheeler last month cut New Zealand's official cash rate to 2.75 per cent. Nine of 14 economists surveyed by Bloomberg forecast the Reserve Bank will lower rates this month.

The RBNZ "remains conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation," Mr Wheeler said, indicating the issues that might moderate the push to lower rates. "It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly." Swaps traders saw a 23 per cent chance of a reduction on Oct 29, down from 43 per cent at the start of the month.

"There is more evidence now from Wheeler's speech that they will not cut in October," said Speizer, a senior market strategist at Westpac Banking Corp in Auckland."As long as global sentiment doesn't deteriorate, the New Zealand factors on their own are supportive for the kiwi in the near term." The yen and the euro advanced, extending rallies that have made them the best-performing major currencies since June 30, as demand for safer assets strengthened amid declining oil prices and concern China will struggle to turn around its economy.

"Risk aversion is prompting the buying back of funding currencies such as the euro," said Akira Moroga, manager of currency products at Aozora Bank Ltd in Tokyo. Strong risk appetite often spurs carry trades, where investors borrow in low yielding currencies so they can buy ones that offer higher returns. "Among the majors, the yen, euro and dollar are bought, in that order." The yen advanced 0.1 per cent to 119.65 per dollar. The euro rose 0.2 per cent to US$1.1401. Japan's currency has gained 2.4 per cent this half, while the euro is up 2.3 per cent.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, slipped 0.1 per cent to 1,193.38, after climbing 0.2 per cent on Tuesday.

BLOOMBERG