Weekly FX Update, 20 April 2015

It was not until the very much late part of the week when US dollar suffered major sell-down as the US dollar index plunged 1.8% to trade below 97.0. The dollar fell into a deeper hole in response to another batch of forecast missing U.S. data. Weekly jobless claims increased to 294,000 from 282,000, missing forecasts of 280,000 and  US monthly budget statement which released during the week showed that the government recorded a monthly deficit of US$52.9 billion in March, above the expectations of US$43.9 billion, with both receipts and outlays increased 8.5% and 13.6% respectively. Meanwhile, the combination of soft retail sales data, contracted industrial production data, and the weaker-than-expected Empire manufacturing survey data diminishing the probability of the Fed commencing its tightening cycle in June. As such, the Euro rose to one-week peaks above $1.07 against the greenback along with the positive upbeat of the industrial production data and the trade data. The merchandise trade surplus for February improved to EUR20.3 billion compared to EUR7.9 billion in the previous month, with the exports increased 4% due to the weak Euro currency since the launching of ECB’s QE programme. Meanwhile, a recent survey from the ECB showed that Eurozone banks expecting loan demand from businesses and households to be strong in the coming months as the funding boost from the ECB massive stimulus plan supported more lending activity. According to Draghi, the asset purchases by ECB are intended to run until the end of September 2016 and, in any case, until there is a sustained adjustment in the path of inflation that is consistent with ECB’s aim of achieving inflation rates below, but close to, 2% over the medium term. This message also is a short shrift given by the ECB chief to any suggestion of a premature end to the QE programme. Japanese Yen has also strengthened against the US dollar after the comments from Koichi Hamada, the adviser of Japanese Prime Minister Abe, regarding the value of the country’s currency. Hamada commented that the yen is appropriate at the level of 105 against the US dollar given the purchasing parity. The increasing possibility of delay in US rate hike also contributed to the strengthening of JPY against the US dollar during the review period. It was no surprise to note that Asian currencies ended the week with a positive bias against US dollar. Top gainers were Malaysia Ringgit followed by Singapore Dollar of 1.99% against US dollar, which mainly due to the Monetary Authority of Singapore’s surprised move by holding off from further monetary easing, followed by Korean Won, and Japanese Yen. The Singapore’s central bank kept the slope, width and mid-point of the Singapore dollar’s policy band unchanged and said it would maintain its policy of a “modest and gradual” appreciation of the Singapore dollar. Meanwhile in China’s macro front, the country’s GDP recorded a growth of 7.0% y/y in the first quarter of year 2015, the slowest growth since 1Q 2009. The country’s industrial production for March also recorded the slowest growth of 5.6% since November 2008.

Ringgit Malaysia rose 2.34% against US dollar to be the best performing Asian currencies on the back of stronger commodity prices with the sharp drop in 1-month MYR NDF rate. The oil prices have rallied during the week, with Brent oil prices rose above US$60/bbl for the first time in a month, supported by the weaker-than-expected US crude oil supply data and weak US dollar. On macro front, World Bank has revised down Malaysia’s growth slow to 4.7% this year before normalizing to 5.0% in 2016, with the country’s current account to remain in a small surplus. Meanwhile, Malaysia has issued US$1 billion of 10-year securities at yield 3.04% and US$500 million of 30-year bonds with the yield of 4.24% to refinance the US$1.25 billion of sukuk which will mature in June.