Weekly FX Update, 18 Apr 2016

Market sentiments took a positive spin on improving China’s data flows, which was commodity supportive, ignoring bearish view of IMF and OECD. China’s exports recorded strongest growth since February 2015, property markets continued to stage a comeback supported by a surge in new credit and 1Q2016 real GDP grew at 6.7%, meeting the median projection by economists. China’s home sales jumped 71% in March – its biggest gains since at least 2015 after People’s Bank of China lowered benchmark rates six times since November 2014. In response, US dollar followed up its best day in more than a month to late March highs against a currency basket along with strong flow of labour market data. The initial jobless claims falling whopping 13,000 to 253,000 which matched the fewest since November 1973 and leave the bar set slightly lower to a Fed rate hike in the months ahead. The currency’s improved tone was also motivated by reduced worries on China, which has curbed demand for low-yielding, safer rivals like Japanese yen and Euro. A better performing commodity tempted many players to dip a toe in riskier waters and edged away from safer shelters. The euro, as a result, slipped to April lows against the greenback, a move that gained added traction from negative press the 19-nation economy received today in data showing industrial production fell by a larger than expected 0.8% in February while inflation got revised to zero from an initial reading of -0.1 percent which the reading lowered the risk of deflation taking hold of the bloc. WTI Crude made a big move, rallying to its highest level of the year to trade close to $42/barrel. Japanese yen backed off as hints of more stimulus being added by the Bank of Japan (BoJ) sent investors selling the currency, leaving the door opens for further easing measures in the ‘safe haven’ currency. Comments by Finance Minister Taro Aso and BoJ’s Governor Kuroda also put pressure for speculators to cut short position. Aso was quoted as saying that world’s leading economies would find it is acceptable for a nation to act against ‘one side, speculative’ exchange rate movement – a nod toward intervention on strong Japanese yen, which appeared to have put on too much muscle of late. Japan has warned of action to slow the yen’s ascent which can complicate officials’ efforts to revive its weakened economy. Asian currencies with an exception to Korean won and Taiwanese dollar were broadly traded on cautious note. Biggest surprise to markets was Monetary Authority of Singapore (MAS) announcement to shift to a “neutral” policy stance with zero appreciation that caused market’s reaction with varying degrees of excitement to it. No change was made to the width or midpoint of the band. MAS' shift appeared to be driven by downward revisions to their medium-term outlook for core inflation, growth and the labour market. Importantly, MAS' target variable of core inflation was seen as "likely to fall below 2% on average over the medium-term." Key point to note from this move is that it could have meaningful spillover effects to the mentality of the other regional central banks that could potentially re-ignite another round of competitive easing/devaluation. Leading the losses, Singapore dollar fell 0.62% against the US dollar followed by Indian rupee of 0.27% and Indonesian rupiah of 0.20% respectively. Ringgit Malaysia traded in a wide range of 3.84 to 3.92 with an appreciation bias in the earlier part of the week before succumbing to depreciation pressure on stronger US dollar flows. In the first half of the week, strengthening of Ringgit Malaysia was motivated by the rally in equity markets and the soar of crude oil prices on speculation that Saudi Arabia and Russia have reached a consensus on an output freeze. As increase in Malaysia 5-year credit default swap (CDS) dominated the flows in the end of the week, Ringgit Malaysia showed rising sign of depreciation pressure despite falling cross SGD/MYR from high of 2.8899 on Monday to trade below 2.880.

Market Movers for the Week v  From US: NAHB Housing Market Index (Apr), Building Permits (Mar), Housing Starts (Mar), Existing Home Sales (Mar), Philadelphia Fed Manufacturing Index (Apr), Conference Board Leading Index (Mar), Markit Manufacturing PMI Flash (Apr), Fed Official Speeches. v  From Eurozone: ECB Interest Rate Decision, Eurozone Current Account (Feb), Eurozone Consumer Confidence Flash (Apr), Eurozone Markit Manufacturing PMI Flash (Apr), Eurogroup Meeting, Ecofin Meeting, Germany Bundesbank Monthly Report, Germany ZEW Economic Sentiment Index (Apr), Germany Markit Manufacturing PMI Flash (Apr), UK Unemployment Rate (Feb). v  From Asia: Japan Balance of Trade (Mar), Japan Nikkei Manufacturing PMI Flash (Apr), China House Price Index (Mar), China MNI Business Sentiment Indicator (Apr), Korea Interest Rate Decision, Taiwan Export Orders (Mar), Taiwan Unemployment Rate (Mar), Indonesia Interest Rate Decision, Singapore Balance of Trade (Mar), Malaysia Inflation Rate (Mar).