Weekly FX Update, 25 Apr 2016

The US dollar kept mostly steady with an appreciation bias, revolving around decisions from the world’s biggest central banks - institutions that are notorious for surprising markets and spurring profit-impacting currency volatility for companies. Mixed US data largely took a back seat to the ECB president’s press conference. US jobless claims fell to fresh lows of 247,000, the healthiest reading since the early 1970s. But the Philly Fed index of Mid-Atlantic manufacturing activity missed the mark with an unexpected contraction reading of -1.6 for April, a sign that stronger headwinds of 1Q extended into the current quarter.

European Central Bank (ECB) left its key interest rates unchanged as widely expected following its bold move in March to slash rates to record lows below zero. What was more interesting to note was the Euro’s reaction to ECB President Mario Draghi’s post-meeting press conference that was widely perceived to be less dovish that fell from high of 1.1376 to 1.1303.  Draghi signalled that while he is prepared to do more, he isn’t in a lot of hurry to act as he spent some time batting away or responding to criticism of the ECB’s previous actions, arguing that March measures need to be given time to work and that financial conditions had eased since March and were supporting the recovery.

Japanese yen weakened against the US dollar on the back of weak manufacturing activity data and the aftershocks which continued to strike Japan after the Kumamoto quakes last week. The preliminary reading of Japan manufacturing PMI showed that the manufacturing activity contracted in April at the fastest in more than three years and output fell the most in two years. Meanwhile, more than 680 aftershocks were recorded to hit the Kyushu since 14th April. Among the aftershocks, 89 have registered at magnitude 4 or more on Japan’s intensity scales, strong enough to shake buildings and disrupt the operation of manufacturing activities. As a result, some manufacturers, included Toyota, Nissan and Honda, were forced to suspend their output.

Asian currencies with an exception of Philippine peso, were generally traded on cautious note. Leading the gain were Korean won, Indian rupee and Singapore dollar due to re-establish of players’ long emerging market position, supported by continued capital inflows. Comment from the Bank of Korea Governor that the rate changes would have limited effect in boosting the economy helped to support the Korean won. The Indian rupee on the other hand was supported by the selling of US dollar by bankers and exporters. The Singapore dollar has regained all of its losses from last week’s surprise MAS easing and in reaction to ECB’s easing bias.

Ringgit Malaysia traded within a band of 3.8668 to 3.9295, with appreciation bias in the earlier part of the week before surrendering to depreciation pressure on stronger US dollar flows. The rebound in crude oil prices due to the labour strike in Kuwait helped to support the Ringgit Malaysia in the earlier part of the week. As the increase in USD/MYR 1-month volatility and the higher cross SGD/MYR dominated the flows in the end of the week, Ringgit Malaysia started to show rising sign of depreciation pressure. On the macro front, the inflation rate for March increased at a slower pace of 2.6% due to the sharp decline in transport group.

Market Movers for the Week

v  From US: New Home Sales (Mar), Durable Goods Orders (Mar), Markit Services PMI Flash (Apr), GDP Growth Rate Advanced (1Q 2016), Personal Income (Mar), Personal Spending (Mar), Core PCE Price Index (Mar), Fed Interest Rate Decision.

v  From Eurozone: Eurozone Loan Growth (Mar), Eurozone Business Confidence (Apr), Eurozone GDP Growth Rate Flash (1Q 2016), Eurozone Inflation Rate Flash (Apr), Eurozone Unemployment Rate (Mar), Germany Ifo Business Climate (Apr), Germany Gfk Consumer Confidence (May), UK GDP Growth Rate Preliminary (1Q 2016), UK Gfk Consumer Confidence (Apr).

v  From Asia: Japan Unemployment Rate (Mar), Japan Inflation Rate (Mar), Japan Retail Sales (Mar), Japan BoJ Outlook Report, BoJ Interest Rate Decision, China NBS Manufacturing PMI (Apr), Korea GDP Growth Rate Advanced (1Q 2016), Taiwan GDP Growth Rate Advanced (1Q 2016), Thailand Balance of Trade (Mar), Singapore Inflation Rate (Mar), Singapore Industrial Production (Mar), Singapore Unemployment Rate Preliminary (1Q 2016), Malaysia Unemployment Rate (Feb), Malaysia BNM Monthly Report (Mar).