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v U.S. dollar rides a safe haven rally
to one-month high against the Euro
v Euro stabilizes with hope intact that
the latest round of negotiations between Greece and its creditors
v JPY appears to be taking a breather
after plunging towards the 120-handle
v Beijing unleash unprecedented series
of support to its equity markets
v KRW and TWD weaken against US dollar
as a result of weakening in Japanese Yen
v Selling pressure on Ringgit Malaysia
stall after it breaks 3.800 psychological levels
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In
the first half of the week, U.S. dollar rode a safe haven rally to one-month
high against the Euro, its strongest in three months against Canada’s loonie
and to fresh five- and six-year highs against the New Zealand and Australian
dollars. Markets flocked for US dollar due to swift downturn in oil, to ride
out uncertainty stemming from Greece’s ongoing debt crisis and sell down in
global equities, especially in China. Interest rate differentials between
lower yielding European government bonds and higher-yielding U.S. Treasury
also buoyed the dollar. However, with dovish Fed minutes released as some
officials cautioned against premature rate hike decisions, the US dollar
softened from Tuesday’s high. The Overnight Interest Swap (OIS) market now
has just 4 basis points priced in for the September FOMC meeting and 9.5
basis points for December. This suggests that the implied probability of a
September liftoff is roughly 20%. The June FOMC minutes largely reflected
Chair Yellen’s caution during the post-meeting press conference.
Euro
stabilized above five-week lows with hope intact that the latest round of
negotiations between Greece and its creditors might finally yield an elusive
deal to keep the nation afloat and a member of the euro zone. Without a deal
soon, Greece’s banks could have a matter of days before collapsing. Banks
remained close until Monday and withdrawal limit is capped at EUR60/day.
Greek Finance minister resigned and may change the way negotiations are led
going forward. He was seen as a thorn in the side by the EU in the
negotiations. Having said that any new package will have to pass legislation
hurdles in many countries, including Germany, which will lengthen
uncertainty.
Japanese
Yen appears to be taking a breather after plunging towards the 120-handle.
Pair hit a low of 120.41 not seen since 19 May on the back of safe-haven
flows over Greek concerns and China stock market rout in particular on top of
less-than-hawkish US FOMC meeting minutes. A close below 119 would cast doubt
over Japanese Yen’s medium term bullish set-up.
Focus
of the week was on China on the unprecedented series of support measures
unleashed by Beijing to support equity markets which has raised fears about
the stability of the world's second-biggest economy. The list of measures
seems to be growing exponentially with each day as the authorities scramble
to halt the market rout. Some 1439 companies out of 2803 across the two
bourses – Shanghai and Shenzen have now suspended shares. The persistent
decline in A-shares forced USD/CNH to touch high of 6.2291 before reversing
lower to levels around 6.2186 to trade at a discount of about 100 basis
points of CNY, pointing to a rising risk of more downside pressure on CNY
ahead.
Asian
currencies closed mix. Korean won and Taiwan dollar fell 0.27% and 0.24%
against US dollar as a result of weakening in Japanese Yen. Thai baht
down 0.26% against US dollar after hitting multi-year high – a high not seen
since September 2009 along with strong selling on local equity in line with
stock market rout in China. China remains an important market for Thailand
with exports to China representing 11% of total exports and Chinese tourists
accounting for 18% of tourism revenue.
Selling
pressure on Ringgit Malaysia stalled after it broke 3.800 psychological level
to close below 3.7940. Local currency was the top gainer for the week with
0.40% gains against US dollar. Markets talk was that Bank Negara intervened
for a third successive trading day to support the currency. Local equity
market down slightly by 13 points to hover above 1700 handle, cross SGD/MYR
remains at multi-year high of 2.8105 despite a weaker SGD and oil prices to
trade below US$60/barrel. The 5-year credit default swap (CDS) stands at
127.988 – remains at elevated level compared to its regional
peers.
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Market Movers for
the Week
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v From US: Monthly Budget Statement (Jun), Retail Sales
Y/Y (Jun), Industrial Production M/M (Jun), Philadelphia Fed Manufacturing
Index (Jul), Fed’s Yellen Testimony to the Congress and Senate, Housing Starts
M/M (Jun), Building Permits (Jun), Inflation Rate Y/Y (Jun), Michigan Consumer
Sentiment Preliminary (Jul).
v From Eurozone: Eurogroup Meeting, Ecofin
Meeting, Eurozone Industrial Production M/M (May), Eurozone Balance of Trade
(May), Eurozone Inflation Rate Y/Y Final (Jun), ECB Interest Rate Decision,
Germany Zew Economic Sentiment Index (Jul), UK Inflation Rate Y/Y (Jun), UK
Unemployment Rate (May).
From Asia: Japan Industrial Production M/M
Final (May), Japan Interest Rate Decision, Japan BoJ Monthly Report, China
Balance of Trade (Jun), China New Yuan Loans (Jun), China GDP Growth Rate Y/Y
(Q2 2015), China Industrial Production Y/Y (May), Singapore GDP Growth Rate Y/Y
Advance (Q2 2015), Singapore Retail Sales Y/Y (May), Singapore Balance of Trade
(Jun), Indonesia Interest Rate Decision, Indonesia Balance of Trade (Jun),
Malaysia Inflation Rate Y/Y (Jun).|
INDICATIVE MAJOR CURRENCIES
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