Last week, the Monetary Authority of Singapore said that the global economy and financial system are at their most fragile state since the 2008 crisis, with the immediate outlook characterised by a high degree of uncertainty.
Not the most encouraging words for traders and investors to hear, but recent data from the various industries seem to agree.
Singapore’s trade promotion agency said that non-oil domestic exports will probably rise 2% to 3% in 2011, lower than a previous forecast of 6% to 7%. Additionally, Singapore’s overall exports fell 16.2% in October from a year earlier - the worst performance in 30 months.
“Singapore’s growth outlook remains negative as a broader downturn takes hold,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch.
The government has released a forecast for economic growth, saying that the GDP for 2012 will come in between 1% to 3%.
However, Singapore’s 2012 GDP forecast “does not factor in downside risks to growth, such as a worsening debt situation or a full- blown financial crisis in the advanced economies,” the government said. “Should these risks materialise, growth in the Singapore economy in 2012 could come in lower than expected.”
The bleak forecast is in stark contrast with earlier reports showing that Singapore’s economy expanded 6.1% from a year earlier.
Indeed, growth in other Southeast Asian economies may have peaked as well. After reporting improving figures in Q3, countries like Malaysia and Thailand have reduced their expectations for Q4 and 2012 respectively.
Indonesia on the other hand, has followed the footsteps of the Reserve Bank of Australia and the European Central Bank by aggressively cutting rates 50 basis points to 6%.
Its combined total cut of 75 basis points in October and November show that the central bank is more concerned of an impending economic slump compared to the risk of inflation with lower rates.
There are essentially two reasons for the slump in the Asian currencies and their economies as a whole.
The first reason is due to the on-going concerns with Europe’s sovereign debt crisis, with the possibility of an Italian default on everyone’s lips.
The second reason is due to the failure of U.S. lawmakers in reaching an agreement on cutting their budget deficit. By law, the special Congressional committee’s inability to reach an agreement will trigger USD1.2 trillion in automatic spending cuts over 10 years to the military and domestic programs, to start in 2013.
These two reasons combined have reduced demand for emerging-market assets all over the world.
Trade Call
Short AUD/USD at 1.0045
On the hourly chart, AUD/USD has dropped 400 pips in the last 10 days, from a high of 1.0343. The psychological level of 1.0000 has been breached last week, and the bias remains to the downside.
An entry is taken on 1.0045, once prices retrace. A protective stop is placed slightly above the previous high of 1.0106. This is a trend play, and we will have two profit targets on this trade, exiting the second position at 0.9915.
Entry Price = 1.0045
Stop Loss = 1.0110
1st Profit = 0.9980
2nd Profit = 0.9915
