Weekly FX Update, 6 July 2015

v  US dollar get off to a firm start with end of month activity, positioning and book balancing v  EU reject Greece’s request for a two-year extension to their bailout plan v  JPY climbs above 123 handle in response to positive US data flows v  SGD gains only 0.03% against US dollar and appears to be in consolidation mode  v  RM enjoys relief rally in response to Fitch Ratings’ affirmation of long term issuer default rating of A- and revised its outlook to stable from negative US dollar got off to a firm start with end of month activity, positioning and book balancing after a volatile month. Greece’s default on its debt also directed flow towards safe harbor assets, boosting demand for US dollar, Japanese Yen and Swiss Franc. US dollar also ended firm on better than expected ADP employment, ISM manufacturing, construction spending data. The ISM purchasing managers manufacturing index rose to a five month high of 53.5 in June suggesting domestic demand is allowing American’s factories to withstand sluggish overseas economies. Greece’s request for a two-year extension to their bailout plan has been received unfavourably by the EU. Greece Prime Minister Tsipras subsequently said he was willing to accept the latest offer as the basis for talks on a new deal but German Chancellor Merkel has ruled out further negotiations ahead of Sunday’s poll. Also, Greece’s failure to repay the IMF put them officially ‘in arrears’ but talk of a full default is notably absent. The currency, however, continued to shrug off this bad news can be bad risk-reward as bulk of Euro movement can be attributed to month end flows rather than the newswires. Euro zone data, which is showing a lack of improvement on inflation and unemployment added to the euro’s weaker disposition as well. Inflation slowed to 0.2% in June from 0.3% in May, though it kept out of the red for a third straight month while unemployment idled at a still high 11.1% in May. Japanese Yen climbed above 123 handle in response to better than expected US data flows rather than improving underlying Japan’s macro momentum. The Q2 Tankan report came in stronger than expected due to an encouraging large manufacturers’ sentiment and upward revisions in their profit outlook, which will give credence to Bank of Japan (BoJ) that makes a less likely case for additional stimulus. Asian currencies ended the week on a positive note. Singapore dollar gained only 0.03% against US dollar and appeared to be in consolidation mode after coming off from a recent high of 1.3566. On the other hand, top gainers were Indian Rupee of 0.65% followed by Taiwanese dollar of 0.30% against US dollar respectively. Surplus rainfall in India narrowed from 28% to 19% while downpour was 39% below 50-year average. Should there be a convergence towards the 88% Monsoon forecast by IMD, an anticipation of drought conditions may drive up inflationary expectations Ringgit Malaysia enjoyed relief rally from a high 3.7843 at start of the week to low of 3.7485 on Wednesday in response to Fitch Ratings’ affirmation of long term issuer default rating of A- and revised its outlook to stable from negative. This goes against its position that Malaysia’s credit ranking sits ‘more naturally’ in the BBB range with a likelihood of ratings downgrade then. KLCI advanced 2.1% on Wednesday’s closing against Monday’s closing of 1,691 – which at the benchmark stock index at six-months low, Ringgit Malaysia strengthened 0.94% from 3.784 – its weakest since July 2005 soon after the government decided to de-peg the currency at RM3.800 in July 2005 and local bond markets saw rising trading interest as markets gapped 6 basis points down with offers on the benchmarks snapped up by players especially in the 7 year tenor. The 5-year credit default swap (CDS) fell 5 basis points to 132 – the biggest drop since March. On the macro front, export in May fell 6.7% on yearly basis led by a decline in shipments of key commodities palm oil and liquefied natural gas while import decreased by 7.2% y/y. As a result of this, Malaysia’s May trade surplus narrowed to RM5.51 billion.                                        Market Movers for the Week v  From US: Markit Composite PMI Final (Jun), Markit Services PMI Final (Jun), ISM Non-Manufacturing Composite (Jun), Labor Market Conditions Index (Jun), Trade Balance (May), JOLTS Job Openings (May), Consumer Credit (May), FOMC Minutes. v  From Eurozone: Conference call on Emergency Lending to Greek Banks, Eurozone Setix Investors Sentiment (Jul), Eurogroup meeting on Greece, Germany Factory Orders M/M (May), Germany Industrial Production Y/Y (May), Germany Trade Balance (May), UK Industrial Production Y/Y (May), UK Manufacturing Production Y/Y (May), UK Interest Rate Decision, UK Trade Balance (May). From Asia: Japan Leading Composite Index Preliminary (May), Japan Current Account (May), Japan Bank Lending Y/Y (Jun), Japan Eco Watchers Survey Outlook (Jun), Japan Machinery Orders Y/Y (May), Japan Consumer Confidence (Jun), China Inflation Rate Y/Y (Jun), China New Yuan Loans (Jun), Korea Interest Rate Decision, Taiwan Inflation Rate Y/Y (Jun), Taiwan Balance of Trade (Jun), Malaysia Interest Rate Decision, Malaysia Industrial Production Y/Y (May).           INDICATIVE MAJOR CURRENCIES Last Close 8.25 am Snapshot        Bid                   Offer Expected Ranges for Today         Low                       High USD/MYR 3.7795 3.7900 3.8270 3.7880 3.8330 JPY/MYR (100) 3.0780 3.0890 3.1260 3.0800 3.1400 SGD/MYR 2.8082 2.7970 2.8350 2.8000 2.8500 EUR/MYR 4.2005 4.1740 4.2140 4.1600 4.2500 AUD/MYR 2.8433 2.8380 2.8740 2.8300 2.9000 GBP/MYR 5.8847 5.9030 5.9420 5.8800 5.9900 USD/JPY 122.79 122.36 122.77 121.96 122.96 EUR/USD 1.1114 1.0870 1.1180 1.0970 1.1080 AUD/USD 0.7523 0.7350 0.7660 0.7460 0.7560