FX Quarterly Report - 3Q15

v We saw a ‘wind of change’ with US dollar correction, re-emergence of tactical carry trade, trough in oil prices, floundering Asian currencies as we highlighted in our “2Q2015 FX Quarterly Outlook”. US dollar went too extreme in term of market positioning.

v In this quarter, risk sentiment will be weighed by a stabilizing global growth, range bound of crude oil prices, lack of dovish innovations from central banks as inflation expectations emerging and degree of vulnerability of Asian emerging currencies due to spread narrowing. A lesser degree of volatility in comparison to previous quarter however is expected.

v Return of US dollar bulls partly in response to US dollar’s rapid retracement in 2Q2015 will be well reflected mostly through Euro, emerging Asian currencies and to a lesser degree of Japanese Yen. Deflation risks in Eurozone are in check but inflation is nowhere in sight while Italy and France are facing mounting structural problems. Greek remained stubborn as ever. Asian currencies especially those commodity-dependent exporters, high leverage and weak FX reserves coverage will be on the top of the hit lists.

v Selling pressure on Ringgit Malaysia is unlikely to abate given the relatively weaker fundamental standing of Malaysia against its regional peers. Its vulnerability gets intensify given the twin prospects of a secular US dollar strengthening and higher US interest rates later this year.

v However, rising possibility of El-Nino can be a supportive driver for Ringgit Malaysia. The currency has an appreciation tendency of 5.3% against US dollar and could last for 10 months. Also, the excessiveness of credit risk premium over Malaysia against its peers stands a chance of realignment once issues over government-linked companies are being rightfully addressed.

 

· USD/JPY	- Kuroda to stand pat
· EUR/USD	- parity challenge re-starts
· GBP/USD	- Bank of England in focus
· USD/KRW	- MERS, budget and US dollar woes
· USD/TWD	- expensive valuation
· USD/RMB	- two ways trade
· USD/SGD	- easing bias expected
· USD/MYR	- treading water
· USD/THB	- struggling for stability
· USD/IDR	- Jokowi’s premium or discount?
· USD/PHP	- risk of over optimism?