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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
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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.
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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).
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INDICATIVE MAJOR CURRENCIES
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