Weekly FX Update, 3 May 2016

v  The surprise move of both BoJ and RBNZ to hold their monetary policy unchanged leads to some sharp swings in the forex markets v  Euro strengthens on the back of positive data flows v  JPY strengthens by 5.0% after BoJ surprises the market by holding off on expanding monetary stimulus v  RM down slightly against the USD as local equity plunges and Malaysia 5Y CDS increases
Central banks have been in the centre focus over the week, with the Federal Reserves, the Bank of Japan (BoJ) and the Reserve Bank of New Zealand (RBNZ) all announcing their monetary policy during the week. The surprised move of both BoJ and RBNZ to hold their monetary policy unchanged has led to some sharp swings in the forex markets as market players have priced in for some sort of actions. Although the Fed as widely expected, left interest rates unchanged, there has been a subtle hawkish shift in the FOMC statement. The FOMC dropped its reference to global economic and financial developments posing risks, but it noted domestic growth had slowed. Besides the surprises from both BoJ and RBNZ, the weaker-than-expected US economy growth also weighed on the US dollar index. US advanced Q1 GDP rose only 0.5% saar, the slowest pace in two year, as businesses slashed investment by the steepest amount since Great Recession. Euro strengthened against the US dollar as deteriorated risk sentiment fuelled the demand for haven currency. The surprised move of central banks to stand pat on monetary policy, the weaker-than-expected quarterly earnings which resulted in the selling pressure on US equities and the soft US economic growth has weakened the sentiment in the currency market. Positive data flows also helped to support the euro as well.  The Eurozone M3 rose 5.0% in March, up from a revised 4.9% in February, suggesting a gradual recovery in the credit cycle is continuing. Meanwhile, the consumer confidence and the labour market in Germany also showed gradual improvement in the latest reading. The flash estimate for Eurozone GDP which showed the currency bloc economy growing solidly and the drop in unemployment rate also helped to support the euro. Japanese yen strengthened by 5.0% after Bank of Japan surprised the market by holding off on expanding monetary stimulus as policy makers opted to take more time to access the impact of negative interest rates. The yen soared around 2.6% after the announcement of the policy as market players forecasted a policy move. The Nikkei QUICK survey showed that around 60% market participants were expecting for additional easing. At the same time, BoJ also postponed their time frame for reaching the 2% inflation target to sometime in fiscal year 2017. It was the fourth delay in about a year. However, BoJ is providing extra support for financing disaster recovery efforts on the earthquake-stricken southern island Kyushu by introducing a JPY300 billion lending facility with 0% interest. Asian currencies with an exception to Philippine peso and Ringgit Malaysia were strengthened marginally against the greenback as strong Japanese yen helped to lift currencies across the region. Leading the gain were Singapore dollar, Thai baht and China renminbi. Fed’s statement which did not show clear view on the June interest-rate hike helped to support the Singapore dollar despite the inflation rate which registered the weakest reading since 1986. Thai baht, on the other hand, strengthened against the greenback on stronger-than-expected March factory output data. In China, the state planner, National Development and Reform Commission (NDRC), announced a 10-point plan to promote consumption and boost economy, also helped to support the China renminbi.   Ringgit Malaysia down slightly against the US dollar due the plunge in local equity and the increase in Malaysia 5-year credit default swap (CDS) rate. The KLCI Index plunged sharply, to close below the 1,700 level and settle at 1,672.72 following the selloff in equity markets across the region. Malaysia 5-year CDS rate broke the 50-day moving average of 161.6 to close at 165.5, 10 points higher than 155.7 a week ago. At the same time, the Prime Minister Office announced the appointment of Datuk Muhammad Ibrahim as the Governor of Bank Negara Malaysia (BNM) for a term of 5 years, starting on 1st of May 2016. Muhammad Ibrahim has been Deputy Governor of BNM since 2010 and a member of the monetary policy committee.
Market Movers for the Week v  From US: ISM Manufacturing PMI (Apr), ADP Employment Change (Apr), Trade Balance (Apr), ISM Non-manufacturing PMI (Apr), Non-Farm Payrolls (Apr), Unemployment Rate (Apr), Fed Engagement Speeches. v  From Eurozone: Eurozone Markit Manufacturing PMI Final (Apr), Eurozone PPI (Mar), Eurozone Retail Sales (Mar), ECB Non-Monetary Policy Meeting, ECB Economic Bulletin, Germany Asian Development Bank Annual Meeting, UK Local Elections. v  From Asia: PMI for Apr (China, Korea, Taiwan, Indonesia, Singapore, Malaysia), China Balance of Trade (Apr), Korea Inflation Rate (Apr), Taiwan Inflation Rate (Apr), Thailand Inflation Rate (Apr), Thailand Consumer Confidence (Apr), Indonesia Inflation Rate (Apr), Indonesia Consumer Confidence (Apr), Malaysia Balance of Trade (Mar). v  Public Holiday: Malaysia, China, Singapore, Hong Kong – Labour Day Holiday (Monday), UK – Early May Bank Holiday (Monday), Japan – Constitution Memorial Day (Tuesday), Japan – Greenery Day (Wednesday), Japan – Children’s Day (Thursday), Germany & France – Ascension Day (Thursday).
INDICATIVE MAJOR CURRENCIES Last Close 8.25 am Snapshot Expected Ranges for Today Bid Offer Low High USD/MYR 3.9160 3.8940 3.9300 3.8920 3.9370 JPY/MYR 3.6791 3.6710 3.7080 3.6600 3.7300 SGD/MYR 2.9191 2.9040 2.9390 2.9000 2.9600 EUR/MYR 4.5128 4.4950 4.5320 4.4700 4.5600 AUD/MYR 2.9981 2.9860 3.0220 2.9700 3.0400 GBP/MYR 5.7475 5.7200 5.7590 5.6900 5.8100 USD/JPY 106.44 105.86 106.27 105.46 106.46 EUR/USD 1.1524 1.1380 1.1690 1.1480 1.1590 AUD/USD 0.7656 0.7520 0.7830 0.7630 0.7730 Source: Bloomberg, AmBank