Weekly FX Update, 11 Apr 2016 (Amended)

The minutes from the Federal Reserve didn’t do much favour for US dollar but it also didn’t serve as fresh catalyst to sell the buck as well. The FOMC minutes showed that Fed voting members are largely divided in the most recent Fed meeting. “Several” Fed officials, saying they backed a cautious approach to raising interest rates, “noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” the minutes said. At the same time, “some” other Fed officials spoke in favour of an April rate hike. Fed officials were also concern about the fragile state of the financial markets and the global economy, the minutes added. The better-than-expected ISM non-manufacturing index and the solid job openings data helped to provide the underperforming US dollar some footing. Stronger-than-expected jobless claims data also helped to support the US dollar.

Euro gained slightly against the US dollar despite the dovish European Central Bank (ECB) minutes. The minutes showed that policymakers saw the scope for further interest rate reductions if the inflation outlook worsens. “The proposed limited rate cut could be judged as appropriate for now, given the current assessment, while it would also not rule out the possibility and prospect of further cuts if warranted by the outlook for price stability,” the minutes said. Better-than-expected retail sales data also helped to support the euro against the US dollar.

Japanese yen broke the 110 supporting level and touched its highest level against the US dollar since October 2014 after Japanese officials signalled they wouldn’t intervene in an attempt to weaken their currency. “Whatever the circumstances, we must definitely avoid competitive devaluation, and I think we should refrain from arbitrary intervention in currency markets,” Prime Minister Shinzo Abe said in an interview. Japanese lawmaker Keiichiro Tachibana, a member of Japan’s ruling Liberal Democratic Party, said the Japan economy could tolerate the yen further appreciating against the buck to around JPY100. Elsewhere, Japanese yen also benefitted from the demand on safe haven currency as the worries about global economy resurfaced.

Asian currencies were on depreciation bias against the US dollar as global risk sentiment deteriorated. Leading the loss were Korean won, Taiwanese dollar, and Indian rupee, mainly due to the selloff in local equity markets as foreign investors unload some of their holdings in riskier assets to seek for quality. Elsewhere, the decision of India’s central bank to reduce its key interest rate to its lowest level in 5 years also contributed to the depreciation bias of Indian rupee against the greenback.

Ringgit Malaysia weakened against the US dollar as the concern about a global slowdown put pressure on the Ringgit Malaysia. Besides the worries about the global economy, the surge in the cross SGD/MYR from the low of 2.86 during the week to close above 2.90 level, the increase in the 1-month MYR non-deliverable forward rate (NDF) and the high Malaysia 5-year credit default swap (CDS) rate also contributed to the selloff of Ringgit against the greenback. On the macro front, Malaysia’s export growth in February rebounded by 6.7% y/y after posting a negative growth of 2.8% in January, as exports of manufactured goods registered a double digit growth. Imports grew 1.6% on yearly basis and the trade surplus widened to RM7.35 billion. Elsewhere, international reserves of Bank Negara Malaysia amounted to US$97.0 billion in March, up from US$95.6 billion recorded in February.