Weekly FX Update, 20 July 2015

v  Generally improving U.S. economy has the US Fed Reserve on track to raise interest rates by the end of the year v  Greece’s securing of a bailout helps reduce global uncertainty which also takes away a potential obstacle to higher U.S. interest rates. v  JPY weaken after the BoJ kept its main rate near zero v  RM up 0.16% against US dollar, as the 1-month USD/MYR volatility fell drastically

The generally improving U.S. economy has the US Fed Reserve on track to raise interest rates by the end of the year - a key positive for US dollar. Federal Reserve Chair Yellen largely stuck to her recent script, reiterating that if the economy evolves as expected, then it would be “appropriate at some point this year” to commence normalising monetary policy. In particular, she noted that labour market conditions had “improved substantially” and that the economic backdrop remains “favourable” for a further gradual decline in the unemployment rate. While price pressures remain subdued, tightening labour market conditions and the fading of transitory influences suggests inflation will gradually pick up. The US dollar - an aspiring higher-yielder, rose against most of its top peers, along with global equities. Market pricing is much more consistent with a December than a September hike. However, Fed officials are by no means ruling out a September hike. Fed officials in general have been trying to de-emphasize the importance of the exact timing of the first hike in their communications, and have continued to highlight that even after the first hike, the stance of monetary policy will remain very easy by historical standards. Euro, after an initial gain on word that Greece had reached a deal on a third bailout with its creditors, the currency was back under pressure as market attention returned to another leading narrative of the week – Yellen’s testimony. Greece struck a deal to receive as much as €85 billion over a period of three years to help it shore up its beleaguered banking sector and allow the government to keep solvent on provision that Greece can implement its promised reforms. The IMF however, cast further doubt over the efficacy of Greece’s proposed bailout plan. Nevertheless, Greece’s securing of a bailout helps reduce global uncertainty which also takes away a potential obstacle to higher U.S. interest rates. At this point, the situation is being claimed to be humiliating for Tsipras and his left-wing Syriza party. Japanese yen weakened after the Bank of Japan kept its main rate near zero, as widely expected by markets but it marked down the outlook for the Japanese economy, keeping intact views Japan may need to step up stimulus at a time the US Fed is leaning toward a rate hike. With the waning Greece’s uncertainties, the safer Japanese yen has fallen out of favour, with the currency flirting with two-week lows against U.S. dollar. However, the volatile Chinese stock market helped to slow down the depreciation of the currency. Asian currencies closed broadly weaker under the stronger US dollar environment despite bullish equity environment. Chinese A-shares rebounded 15% over the past three days after the market’s worst rout in over two decades. Top losers were Korean won, which down 1.48% followed by Singapore dollar of 0.80% and Japanese Yen of 0.58% against US dollar respectively. Ringgit Malaysia up 0.16% against US dollar – the most stable among its Asian peers with strong resistance at 3.8073 as the 1-month USD/MYR volatility fell drastically to 9.29 from high of 10.39 on Monday. Selling pressure on local equity seemingly abated as it rebounded from recent low of 1695 to trade above 1720 backed by strong buying interest by local institutions. Likewise with the sharp plunge in the 5-year credit default swap rate from the recent high of 146.9 to close below 126 basis points – a reflection of excessive market premium over Malaysia compared to its regional peers. On the macro front, headline inflation rate rose to 2.5% in June, after rising by +2.1% in May and compared with +1.8% in April as RON95, RON97 and diesel fuel prices were raised by RM0.10 each to RM2.05, RM2.35 and RM2.05 on 1 June 2015 respectively.

v  From US:  MBA Mortgage Application (Jul 17), FHFA House Price Index M/M (May), Existing Home Sales (Jun), Chicago Fed Nat Activity Index (Jun), Initial Jobless Claims (Jul 18), Leading Index (Jun), Markit US Manufacturing PMI Preliminary (Jul), New Home Sales (Jun). v  From Eurozone:  ECB Current Account SA (May), Consumer Confidence (Jul), Markit Eurozone Manufacturing PMI Preliminary (Jul), Market Eurozone Services PMI Preliminary (Jul), Markit Eurozone Composite PMI Preliminary (Jul). v  From Asia: Japan Leading Index CI (May), Japan BoJ Monetary Policy Meeting Minutes, Japan All Industry Activity Index M/M (May), Japan Machine Tool Order Y/Y (Jun), Japan Trade Balance (June), Japan Nikkei PMI Manufacturing Preliminary (Jul), China HSBC Manufacturing PMI Preliminary (Jul),  Singapore Inflation Rate Y/Y (Jun), Singapore Industrial Production Y/Y (Jun), Malaysia Foreign Reserves (Jul 15), Malaysia Unemployment Rate (May).

INDICATIVE MAJOR CURRENCIES Last Close 8.25 am Snapshot        Bid                   Offer Expected Ranges for Today         Low                       High USD/MYR 3.7968 3.7885 0.22 3.8100 3.7885 JPY/MYR (100) 3.0601 3.1082 -1.55 3.0888 3.0582 SGD/MYR 2.7817 2.8072 -0.91 2.7987 2.7774 EUR/MYR 4.1351 4.2225 -2.07 4.1990 4.1310 AUD/MYR 2.8084 2.8154 -0.25 2.8477 2.7985 GBP/MYR 5.9403 5.8856 0.93 5.9665 5.9274 USD/JPY 124.09 121.99 1.72 124.23 123.26 EUR/USD 1.0830 1.1099 -2.42 1.1036 1.0829 AUD/USD 0.7371 0.7438 -0.90 0.7489 0.7350