This Currency War Business – Singapore Sitting Duck

This currency war business has made it possible for Romania(Baa3/BB+/BBB-) to issue a 10Y USD paper at 4.625%.

Do not be dismayed because Philippines 2021 is trading at 2.5%. That makes Romania a good deal because Philippines is rated Ba1/BB+ (Moodys/Fitch) , below investment grade.

Wrote about Currency Wars last year but things have gotten a bit too overwhelming and countries are throwing in the towel.

Thailand to avoid currency fight as shadow of 1997 crisis looms
New Zealand Finance Minister says country won’t enter currency war zone with “peashooter”
CITI: Here’s Why The World’s Rich Countries Will Always Win A Currency War
Mantega says Brazil won’t allow over appreciation of Real

My definition of a currency war is essentially the competitive debasement of a currency with reference to others, leading to a more competitive environment for exports and thus, the current account of the country.

When did this currency war start ?

I would say since China started her peg.

“As China pursued its gradual transition from central planning to a market economy, and increased its participation in foreign trade, the renminbi was devalued to increase the competitiveness of Chinese industry.” Source : Wikipedia

That went on for years unnoticed. Why ? Because CNY is not G3.

To go further back, it would have been Japan and Taiwan after WWII and their drive to get their economies going and to go even further back, it was the US before Bretton Woods.

Many people would disagree with me and say that it was Bernanke who threw the first punch in this currency war with his QE printing press which I would counter as an attempt to right the decades of imbalances accumulated by the US from cheap Chinese (and BRICS) imports that brought their own manufacturing model down.

How do you weaken a currency ?

1. Peg weakness – by pegging a currency at a fixed rate or ratio to another currency or a basket of currencies such as the CHF last year

2. Interest rate cuts – cutting interest rates to compete with another currency

3. Deficits – by increasing the deficit via its current account balance or through increased spending

4. QE print machine – Treasury issues, FED buys when interest rate cuts are not possible because interest rates are ZIRP (zero interest rate policy)

Why are we suddenly taking it so seriously now ?

Because Japan = G3 is openly declaring a currency war by targeting inflation at 2%, ie. they will depreciate with rate cuts and fx intervention to make sure that happens. That is a big deal if we consider the implications from the 2nd  or 3rd most traded currency pair in the world.

Yes, but why did no one scream at Bernanke’s QE currency war ?

Because no one thought to do so, in my opinion, as official reports never mentioned a currency angle to it. Besides, the US is not an export driven economy which slims down the chances that there will be competitive disadvantages other than reducing imports and bringing home manufacturing.

How Now, Brown Cow ?

Singapore – worse than currency war, she is a currency sitting duck. She is the only country in the world on an appreciation path (vs a basket), unless you want to count in Brazil which aggressively depreciated in the past few years and hiked recently.

SGD is managed as a NEER basket to always appreciate when there is inflation in economic growth times.

That makes Singapore an open target for the sensible investor. Keep buying the SGD and selling the JPY or USD.

From a funding angle, Singapore interest rates are about the same as the JPY and the USD. Everything is close to zero these days anyway and anything above zero you get for Singapore rates, is a bigger profit for the investor (borrow USD or JPY at 0% and lend SGD at x%), in addition to the SGD appreciation promised by the NEER slope (slope is rate of appreciation, band is the tolerance).

It will be a matter of time before the hungry hordes come onshore.

Why are they not here yet ?

? Too busy preoccupied with the Great Rotation? Singapore’s recent by election results
? Potential for economic slowdown in recent economic data
? The returns are not obvious enough to the masses with the SGD on the strong side of the NEER

or is it the MALAYSIAN ELECTIONS  ??? (rumours of a regime change making its calls around)

What is the implication for Singapore ?

A country that operates on uncovered interest rate parity is asking for trouble when global interest rates are zero.

The brilliant genius of Dr Goh Keng Swee could not have foretold this scenario when the initial exchange mechanism was conceived.

Interest rates will have to go to -2% for the SGD to be competitive. Yet we cannot have the social hazard of such an event.

Do we need it to be competitive ?


There is too much growth happening on this little island running at almost full employment that a breather would be a welcomed relief. Thus the government’s current efforts to slow down and restructure the economy to move up the value chain.

Killing off the laggard, low end manufacturing sector and outsourcing low end services offshore would be a good start. This will allow us to increase wages and afford the exorbitant prices for property and cars.

Who Needs SGD NEER ? We Have SGD REER ! – The Great Singapore Economic Debate !

Currency War Trades

There is a whole bunch of finger pointing articles, screaming foul at currency wars. None have suggested much.

I do not really care for most of the calls arising from the hubris of experts. We have not seen such a large scale currency war before.

Some naughty daredevil hedge funds may want to attempt the Soros attack on the pound, in reverse, to buy non currency war participating currencies till they start the devaluation game. Currencies like the AUD, SGD, NZD, NOK, CAD and likes. It is already happening to the KRW.

I would not take such a bet with central banks ready to pounce.

Yesterday’s headlines.

Japan Finance Minister: Agree With G-20 Commitment to Avoid Competitive Currency Manipulation [Dow Jones]
Senior US Administration Official: G-20 FX Vow Marks Start of Common FX Guidelines [Dow Jones]

The safest bet would still be Gold. Not Gold vs the SGD.

How about XAU/JPY as a thought ?

I bought some XAU/EUR on Friday for a medium term punt. Will not look at it for a few months like I did the last time which allowed me to take profit at 1300 (then it shot up to 1386 !! grrrr).

As for SGD, I have my view that 1.26 is nearer than we think. But that is just my personal opinion. And I am contrarian in putting money in AUD.

So much for sitting ducks.