SINGAPORE, July 13: The Singapore dollar slipped today after data showing a surprise contraction in the economy in the second quarter, while other emerging Asian also weakened a tad to extend losses for the week due to worries over a slowdown in major economies.
Regional currencies soon recovered from initial declines registered after China reported it weakest GDP growth figure in more than three years, as the 7.6 per cent growth in the second quarter was in line with expectations and traders who had bet on a weaker number quickly covered short positions.
Fears of a slowdown in the global economy, and euro zone debt problems have dampened sentiment among Emerging Asian currencies, whose economies are largely export driven, dealers and analysts said.
The region continues to be buffetted by ill-winds from the euro-zone. Moody’s Investors Service surprised markets by downgrading Italy’s government bond rating by two notches to Baa2 and warned it could cut further.
Emmanuel Ng, foreign exchange strategist at OCBC Bank in Singapore, expected more negative shocks from the global economy, but expected them to be tempered by hopes that the U.S. Federal Reserve and Bank of Japan may ease monetary conditions further.
Ng said he expect further bouts of risk aversion in the third quarter, that would check any strength in Asian currencies.
The sense of gloom worsened following Singapore data showing its economy shrank 1.1 percent, on an annualised seasonally adjusted basis, in the second quarter from the previous three months, missing a Reuters poll forecast for 0.3 percent growth.
Though the data pushed down the Singapore dollar, buying by hedge funds limited its decline, dealers said.
South Korea’s central bank also lowered this year’s economic growth and inflation forecasts, supporting expectations of a further rate cut after the bank on Thursday announced its first cut in more than three years, surprising the market.
The reduction in the base rate by 25 basis points to 3.0 percent put the won on course to be the worst performing emerging Asian currency this week.
The South Korean unit has lost 1.3 percent against the dollar so far this week, according to Thomson Reuters data.
(AGENCIES)
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