Serious Huat Arh! Sinkie dollar is going ...............

[Asterix]

The Singapore dollar is poised to weaken further as the escalating trade war between the world’s two largest economies weighs down growth in the export-dependent city-state.


Poor export data that landed Friday underscore the downward pressure on the currency’s nominal effective exchange rate, which has quietly crept away from the upper end of the band that monetary policy makers use to keep Singapore on an even keel.


With no deal in sight between the U.S. and China, revised gross domestic product figures due Tuesday are the next thing to watch for clues on the trajectory of the Singapore dollar, which has slipped about 1% this month.

“Given the small size of the Singapore economy and the subdued outlook in the electronic sector, risk is for more weak economic data to come,” said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. “Potentially weak data may push MAS expectations toward a more dovish side.”


Larger declines in other Asian currencies caught in the crossfire between China and the U.S. has deflected attention from the simmering signs of weakness in the Singapore dollar. A closer look shows that six-month forward discounts on the greenback against the currency narrowed to the tightest level in 16 months last week.


The Singapore dollar fell 0.2 percent against to trade at S$1.3749 per U.S. dollar as of 3:58 p.m. local time on Friday.
The International Monetary Fund warns that the risks to the economy are tilted to the downside and that the Monetary Authority of Singapore’s response to the challenge should be "data dependent."
Cold Comfort
Analysts forecast a modest upward revision in first-quarter GDP growth to 1.5%, which would still leave it far below the five-year average of 2.9% and offer little support for the currency.
Looking beyond Tuesday’s data, a projected narrowing in the so-called output gap this year is also likely to keep inflationary pressures in check and weigh on the Singapore dollar.
The MAS said last month that economic output is currently running above the city-state’s potential rate but that the gap will narrow. The authority reduced the pace of currency gains twice 2015 before the output gap nearly closed the following year.
This is fanning speculation that policy makers may do the same again in their next policy decision in October.


MAS forecasts the output gap will narrow in its Macroeconomic Review report in April.

https://www.bloomberg.com/news/arti...-slipping-as-trade-war-chips-at-monetary-band

 

[laksaboy]

Does Auntie Ho have many GLC adventures in China?

Hong Kong dollar is going to nosedive. If you're holding on to large quantities of HKD (not sure why you would), better be careful.

 

[Asterix]

Does Auntie Ho have many GLC adventures in China?

Hong Kong dollar is going to nosedive. If you're holding on to large quantities of HKD (not sure why you would), better be careful.

Having failed to preside over a collapse in the yuan, hedge-fund manager Kyle Bass has a new target: the Hong Kong dollar peg. He’s wrong about that, too.


Bass is shorting the Hong Kong currency and is “very long dollars,” the founder of Hayman Capital Management told Bloomberg TV in an interview Tuesday. The Hong Kong Monetary Authority has spent 80% of its reserves over the past year defending the peg, he said in an investor letter on the city’s “impending crisis.” That prompted a riposte from the de facto central bank, which said his analysis was based on a misunderstanding.


“Once depleted, the pressure on the currency board will become untenable and the peg will break,” Bass wrote in the letter, reproduced on the Zerohedge website.


Well, not quite. What Bass calls excess reserves is better known in Hong Kong as the aggregate balance. This can go to zero and stay there for years without the peg breaking. It is, in fact, how the currency board mechanism works.


Countdown to Zero
Hong Kong's aggregate balance has been there before, for an extended period

Source: Bloomberg

Hong Kong fixed the value of its currency at 7.8 to the dollar in 1983 and has kept the system, with some minor adjustments, ever since. As the HKMA gently explains to Bass, when the aggregate balance shrinks, then local interest rates rise. Higher rates reduce the incentive for investors to sell the Hong Kong dollar. Bass’s breathless analysis points to the “staggering” 80-basis-point gap between Hong Kong’s interbank rate and U.S. Libor and concludes that investors will switch into the higher-yielding currency. This is exactly what is supposed to happen.


If anything, the aggregate balance is still too big. Hibor has been subdued because banks kept on depositing cash with the HKMA, even at zero interest. As Bass correctly observes, Hong Kong benefited hugely over the past decade from inflows triggered by the Federal Reserve’s quantitative easing and the city’s proximity to China’s credit boom. The aggregate balance is still higher than before the Lehman bust and needs to fall further so that Hibor can rise.
Spread Betting
U.S. rates have climbed in the past year, putting pressure on the Hong Kong dollar

Source: Bloomberg

The hedge fund manager is on firmer ground when he says that Hong Kong rates will spike if the aggregate balance goes to zero. More questionably, he goes on to say that this could cause the banking system to collapse, prompting a Chinese government bailout that may leave foreign depositors of overseas-based institutions such as HSBC Holdings Plc and Standard Chartered Plc in the cold.
Well, probably not. Hong Kong banks still have plenty of money sitting idle. The loan-to-deposit ratio, while on the rise, stands at 87.8%. Even if Hong Kong dollar liquidity gets tight, the monetary authority can simply stop rolling over its issuance of Exchange Fund bills. It’s amassed a stockpile of more than HK$1 trillion ($127 billion), over five times as much as in the pre-Lehman days.
Where's the Stress?
There's still plenty of idle money in Hong Kong banks

Source: Bloomberg

There are plenty of other objections to Bass’s analysis, which market participants have been quick to leap on. He’s right about some things, though. Banking systems that became overly large relative to the size of the local economy were crisis markers for Iceland and Cyprus. Hong Kong’s total banking assets have ballooned to 850% of GDP, from about 460% at the end of 2002.
More importantly, there’s the threat that the U.S. could stop treating Hong Kong as a separate customs territory because of the erosion of the city’s autonomy by China – a risk heightened by the government’s attempt to push through a controversial bill that would allow fugitives to be extradited to the mainland. That’s an Armageddon prospect for Hong Kong, though remains a low-probability event.
But what’s most striking about Bass’s doomsday warning is the lack of historical awareness. After dubiously asserting that the Hong Kong handover triggered the Asian financial crisis, he notes that overnight rates jumped to 20% (one-month Hibor reached 27% at its peak in 1997) and real estate prices tumbled about 70 percent. Yet not a single bank went under. And the peg held.
To bolster his case, Bass invokes… Argentina, whose currency board collapsed in the early 2000s. Argentina? The South American country has been defaulting on its international obligations since the 19th century. Hong Kong, with its serial budget surpluses, has no such problems with its fiscal image. We can almost hear the guffaws from Hong Kong foreign-exchange trading floors.
Those who cannot learn from history are doomed to repeat it, as the philosopher George Santayana is reputed to have said. If Bass wants to brush up on the history of bets against the Hong Kong dollar peg, he could consult Bill Ackman.

https://www.bloomberg.com/opinion/a...s-s-hong-kong-dollar-short-fails-history-test