The rise in the
US Dollar (USD) regained its traction last week, with the Dollar Index
(DXY) last seen at a high of 83.97 early Friday morning. The improvement in
the US economy is supporting the view that the Federal Reserve will need to
start increasing its interest rates. On the manufacturing front, the US ISM
manufacturing index for August came in stronger than expected, rising to
59.0 (expected: 57.0) from 57.1 in July. Other manufacturing-related data
released showed that factory orders rose 10.5% month-on-month (m-o-m) in
July. On the services front, the ISM services index for August also came in
higher than expected at 59.6 (expected: 57.7), up from 58.7 in July. The
outlook from the Federal Reserve’s Beige Book was generally positive, with
all 12 Federal Reserve districts recording modest to moderate economic
growth. Heading into Friday’s release of the US employment data, the weekly
initial jobless claims was in line with expectations at 302,000 while the
August ADP employment report showed private sector hiring rising to
204,000.
The Euro skidded to a low of $1.2920 against the
USD on European Central Bank’s (ECB) monetary policy easing. Expectations
of additional monetary stimulus formed the previous week were scaled back
after data released showed that inflation came in at expected 0.3%
year-on-year (y-o-y). However, the ECB surprised the market by lowering the
refinancing rate to 0.05% and the deposit rate to -0.20% while announcing
that an Asset-Backed Securities purchase program would begin in October.
ECB President Mario Draghi also hinted at the possibility of embarking on
quantitative easing if euro area deflation risks intensify. Over in the UK,
the Bank of England kept its monetary policy unchanged amidst signs that
the UK economy is slowing down. The pound was weighted down by news of
increasing support for Scotland to break away from the UK.
The 104- and 105- level in the USD/JPY pair gave
way as the Yen weakened on speculation that Japan’s Prime Minister Shinzo
Abe will appoint an ally to head the Health Ministry who is in charge of
the ¥126.6 trillion Government Pension Investment Fund (GPIF). About 55% of
GPIF’s assets under management are currently invested in Japanese bonds as
of March and the current review of its asset allocation strategy may see
GPIF buying more equities as well as foreign bonds which will likely be
negative for the Yen.
Asian currencies, with the exception of the Indian
Rupee, Chinese Renminbi and the Philippines Peso, ended the review period
with a depreciation bias on the back of the USD strength. On the data
front, India Q2 GDP came in better than expected at 5.7% y-o-y (expected:
5.5%), up from 4.6% y-o-y recorded in Q1. In the Philippines, August’s
inflation print of 4.9% y-o-y remained elevated at the upper range of the
central bank’s target. Indonesia’s exports for July fell 6.0% y-o-y while a
larger contraction in imports by 19.3% y-o-y resulted in a small trade
surplus of USD124 million. Over in Thailand, August’s inflation remained
contained at 2.09% y-o-y as price control measures imposed by the Thai
junta kept a lid on price increases.
At home, the
Ringgit Malaysia (MYR) lost 0.82% after last seen probing the 3.1400-level.
The first decline in China’s official PMI in August to 51.1 (July: 51.7) in
6 months led to fears that regional trade may be dampened. Tellingly,
Malaysia’s exports in July grew at the slowest pace in 13 months at 0.6%
y-o-y. Meanwhile, the Plantation Industries and Commodities Minister
announced that exporters of crude palm oil will enjoy exemption from export
duty for September and October. Elsewhere, BNM governor Tan Sri Dr Zeti
noted that there is less disruptive risk arising from any prospective ECB’s
quantitative easing as compared to that undertaken earlier by the Federal
Reserve.
Market Movers
for the Week
v From US: Consumer credit (Jul), NFIB small
business optimism (Aug), JOLTS job openings (Jul), Initial jobless claims
(Sep), Retail sales (Aug), University of Michigan confidence (Sep).
v From Eurozone: Germany current account balance
(Jul), Germany trade (Jul), UK industrial production (Jul), UK trade (Jul),
Germany CPI (Aug), ECB Draghi speaks at event in Milan, Employment (Q2),
Industrial production (Jul), UK construction output (Jul).
v From Asia: Japan GDP (Q2), Japan current account
balance (Jul), China trade (Aug), BoJ meeting minutes, Japan consumer
confidence index (Aug), Japan money stock (Aug), China CPI (Aug), Japan
industrial production (Jul F), China industrial production (Aug), China
retail sales (Aug).
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