Weekly FX Update, 18 May 2015 Market Movers for the Week

The US dollar index (DXY) has continued its depreciating bias from last week due to the released of soft US economy data despite the positive data from monthly budget statement and the job data. The US Treasury collected a record US$472 billion last month, leading to a US$157 billion surplus for April. This was also the fifth-largest monthly surplus on record. Meanwhile, the initial jobless claims were little changed from last week, but the four week moving average declined to a new 15-year low of 272,000, which is consistent with the ongoing solid growth in the labour market. However, with both April’s retails sales and March’s business inventories coming in below expectations, the depreciating bias dominated the trend for DXY. As such, the Euro continued to strengthen against the greenback along with the positive economy growth data which released during the week. The economy growth in euro area rose 0.4% q/q, the fastest pace in nearly two years. The growth was particularly strong in France and Italy, which expanded at rates of 0.6% and 0.3% respectively. This was the first time the top four economies in the euro area recorded growth since early 2010. Positive economy data also caused the speculation of market players on the possibility for the European Central Bank (ECB) to scale back its dovish tone for monetary policy. At the same time, easing concerns over Greece after the country confirmed a payment of EUR750 million to the International Monetary Fund (IMF) also kept the currency supported. Meanwhile, the sterling kept its upward momentum after the UK general election and the positive economy data which released during the week, appreciated to a high at 1.58 against the greenback. On Monday, the Bank of England decided to keep its interest rates on hold this May, keeping them unchanged for the first time since the general election. However, in its Inflation Report, BoE trimmed the GDP growth forecast of year 2015 to 2.5% from 2.9%. On the other hand, the better-than-expected industrial production data and the strong labour market report contributed to the strengthening of GBP. It was no surprise to note that Asian currencies ended the week with a positive bias against US dollar. Leading the gain were Singapore Dollar, followed by Ringgit Malaysia and Taiwanese Dollar. On Wednesday, IMF projected Singapore to grow an average of 2.5%-3.0% in 2015, which is in the lower half of the official forecast range of 2%-4%. However, the risks to Singapore growth has been revised downward compared to last year. IMF assessment echoed that of the Monetary Authority of Singapore’s (MAS) Macroeconomic Review in April – that Singapore should see a broad-based recovery in domestic demand in the rest of 2015. This helped to support the strengthening of Singapore Dollar. Last week, Ringgit Malaysia gained 1.04% against the greenback following the sharp drop in MYR 1-month volatility and 1-month MYR NDF rate together with the positive economy data. The decreased in 1-month volatility of Ringgit Malaysia from the 4-year high of 11.4% to below 10.0% last week together with the strengthening of 1-month NDF helped to support the appreciation of Ringgit Malaysia. On the macro front, Malaysia’s industrial production increased at a faster-than-expected pace in March due to the strong performance by all the three sectors. Meanwhile, the statistic office also released the sales value of manufacturing sector, which increased 4.4% annually to RM58.4 billion in March. At the same week, the Department of Statistic Malaysia also released the gross domestic product (GDP) and current account balance of Malaysia for the first quarter of the year. The country’s economy growth during the first quarter is 5.6% annually, exceeded the economists’ consensus of 5.5%. This was mainly driven by the strong increased in private investment and private consumption. Meanwhile, the current account surplus widened to RM10.0 billion following the revised surplus of RM5.7 billion at the preceding quarter. v  From US: Housing Starts (Apr), Building Permits (Apr), FOMC Minutes, Markit Manufacturing PMI Flash (May), Existing Home Sales (Apr), Philadelphia Fed Manufacturing Index (May), Inflation Rate Y/Y (Apr), Fed’s Yellen Speech.      v  From Eurozone: Eurozone Inflation Rate Y/Y Final (Apr), Eurozone Balance of Trade (Mar), Eurozone Construction Output Y/Y (Mar), Markit Manufacturing PMI Flash (May), Markit Services PMI Flash (May), ECB President Draghi Speech, Germany Bundesbank Monthly Report, Germany Zew Economic Sentiment Index (May), Germany IFO Business Climate (May), UK Inflation Rate Y/Y (Apr), UK MPC Meeting Minutes, UK BoE Governor Carney Speech.       v  From Asia: Japan Machinery Orders M/M (Mar), Japan GDP Growth Rate Q/Q Preliminary (Q1 2015), Japan Coincident Index Final (Mar), Japan Markit/JMMA Manufacturing PMI Flash (May), Japan BoJ Interest Rate Decision, China House Price Index Y/Y (Apr), China HSBC Manufacturing PMI Flash (May), Taiwan Unemployment Rate (Apr), Thailand GDP Growth Y/Y (Q1 2015), Indonesia Interest Rate Decision, Malaysia Inflation Rate Y/Y (Apr).