May 12th, 2008

USD strength thesis is US is in a recession but others soon to follow; Fed already had easing cycle but BoE and ECB soon to fllow
US has 765 cars for every 1,000 people; China has 10 cars per 1,000 people
Turkey rate decision on Thursday

SGD: Pair tested below to 1.3650 (61 the low) but state name buying bounced up through 1.3700; tracking EUR
- PBOC hiked RRR by 50bps to 16.5% effective on 20May
- FM said no change to 2008 fiscal deficit target despite esacalating food/fuel costs
- this week looking at retail sale, NoDX, and GDP

THB: Buying interest from the outset with swap also shifting to the right
- gapped above 32.00 to 32.20 next, with 32.40 after that; should see BoT capping rallies with oil prices and inflation => importers and investors shorting THB
- FM opined the full year growth will come in at 6.0%
- Thailand's Surapong said 2008 inflation may be faster than 5%

South Africa
Correction on Friday was from 1) dip in SARB gold and FX reserves 2) dip in global equity markets
Reserves decline not a huge deal with dip caused by gold prices (FX reserves increased), but market still weary of c/a deficit financing
This week look for strengthening USD to hurt all commodity currencies, especially those with weak fundamentals (ZAR)
Techmical indicators show push up to 7.85 - 7.92 over next two weeks
Next week look for inflation figures and Q1 GDP growth for SARB outlook
NERSA verdict on Eskom's 53% price request due out on 06Jun

A mixed day in the market as Asian currencies settled down from the massive short-covering of the past week. With EUR recovering back above 1.5500 we saw USD/SGD collapse back to 1.3660 level, ending the day at the low of 1.3635. Very light data globally but US equities responded positively to lower oil and generally positive risk sentiment. EM responded accordingly with ZAR, TRY, BRL, all appreciating and MXN appreciating singnificantly dropping from 10.57 on Friday to 10.48 at the close. Should continue to see a mixed market as Asia move appears to be losing steam and China's hiking the RRR again by 50bps reminds markets that inflation remains a great risk and currencies potentially will appreciate accordingly.