Weekly FX Update, 27 April 2015

US dollar continued to struggle for direction as markets try to gauge the extent to which the U.S. economy has moderated in recent months. Uncertainty over the shape of U.S. fundamentals has dampened expectations for the Federal Reserve to boost interest rates, loosening the pillar that has long supported the currency among other counterparts from Australia and Britain bolted higher with the latter soaring to five-week peaks above $1.50 after less dovish minutes from the April Bank of England (BOE) meeting diminished the weight of election uncertainty and a surprise uptick in core inflation in Australia made an imminent Reserve Bank of Australia rate cut a little less likely. An indecisive greenback also helped the Canadian dollar eke out a gain. What we are witnessing is a market that had priced in a 1Q or 2Q rate hikes holding their bets and or taking them off the table as the market pushes out its expectations for a hike to late 2015. The markets sentiment has also shifted as Commodity Futures Trading Commission (CFTC) data suggests the net long US dollar position has been cut by close to US$10 billion since January when it seemed as though the entire market was long US dollar. Euro traded in narrow range after a bounce to high of $1.08 which once again proved to be short-lived. Markets appear to be giving Athens the benefit of the doubt that it would ultimately squeak by with a deal to keep the rescue cash flowing. The situation remains fluid and precarious which kept a relatively low ceiling. The currency however found some marginally positive supports in Germany’s upgraded outlook for Europe’s top economy which it now forecasts to grow 1.8% from 1.5% this year along with this prolonged period of low oil prices. Japanese Yen tried to test above 120 as Japanese investors continued to be a net seller, short covering for JPY crosses and as Nikkei closed above 20,000 for first time in 15 years. The local equity has surged of over 15% year to date, building on an incredible 140% boom since June 2012. Trade data also helped support markets as Japan reported its first monthly trade surplus in nearly three years. The monthly trade balance came to a surplus of ¥229.3 billion (US$1.9 billion), well ahead of a forecast ¥47.9 billion. Asian currencies mostly ended on the bullish note against the US dollar. Leading the gainers were Singapore dollar followed by Malaysian Ringgit and Taiwanese dollar. On the other extreme, Indian rupee and Thai baht fell 1.02% and 0.42% against the US dollar respectively. Fund flows continued to favour Asian equity markets as global money managers tapping into China’s world-beating stock rally as China's central bank is kicking into gear, launching new stimulus designed to counter the country's slowest economic growth in six years.

Ringgit Malaysia was among top performers with a 1.16% gains against the US dollar due to declining cross SGDMYR from peak of 2.6920 to 2.6847, supportive 1-month NDF rate, bullish local equity that traded above support of 200-moving average level of 1819 and strong rebound in CPO prices. However, the 1-month volatility of Ringgit Malaysia continued to trend upward to 10.0% from the start of the week. On the macro front, the Public Service Department (PSD) Director-General Tan Sri Mohamad Zabidi Zainal said those in Grade 11 (G11) - the lowest in the public service, whose take-home salary and allowance amounted to between RM1,257 and RM1,275 can expect higher wages, set to be announced by year-end. Meanwhile, headline inflation rate picked up to 0.9% in March, after easing to +0.1% in February and from a recent high of +3.3% in August. This, to a larger extent, was attributed to a rebound in retail fuel prices for the first time in four months.