Daily FX Update, 18 May 2016

v  US core inflation rate has been at 2% or higher for six months v  US industrial production posts its largest gain in 18 months v  US housing market continues to show gradual recovery v  Euro area trade surplus increase as imports drop faster than exports v  Nielsen: Malaysians are still among the world’s top savers

OVERNIGHT MARKET UPDATE: ·         US – The April headline CPI rose 0.4% m/m, its strongest monthly gain since February 2013 and was led by a 3.4% rise in the energy index. The annual headline rate rose to 1.1% y/y, faster than the 0.9% y/y recorded in March. Probably of more significance though was the 0.2% m/m rise in the core CPI measure, which left it 2.1% higher on annual basis. While this is a touch lower than March’s 2.2% y/y rise, the core measure of inflation has now been at 2% or higher for six months. ·         US – The industrial production rebounded in April, rising 0.7% m/m (its largest gain in 18 months) and largely offset March’s revised 0.9% drop. April’s rise was driven by a rebound in utilities (+5.8%). Manufacturing production rose 0.3% m/m (vs -0.3% in March) and capacity utilisation rose to 75.4% vs 74.9%. ·         US – The housing market continued to show gradual recovery. April’s housing starts rose 6.6% m/m, partly reversing March’s 9.4% drop. Permits were also up 3.6% m/m. ·         Euro area – The trade surplus in March was EUR22.3 billion. The 27% y/y rise in the surplus was driven by an 8% y/y drop in imports and masks a 3% y/y fall in exports in March. Q1 export data for the EU were worse. Exports to China (the EU’s second largest export destination) fell 1.0% y/y in Q1 and exports to the US fell 5% y/y in Q1. ·         Currencies – The AUD held onto gains delivered by the RBA Minutes. The GBP held onto gains driven by Brexit polls. The USD was broadly unchanged by CPI. ·         Equities – Dow Jones sank to its lowest level in almost 2 months after comments from Fed officials fuelled the fears that the Fed would resume rate hikes as early as June. ·         Rates – Short-term Treasury yields climbed as a rise in inflation seen strengthening the Federal Reserve’s case for hiking interest rates later this year.  Adding to the rising trend were hawkish comments by both Fed Lockhart and Fed Williams. ·         Energy – Crude oil prices increased as market players bet that the recent output disruptions will drawdown the globe’s supply surplus. ·         Precious Metals – Gold prices closed higher as declines in US equities and the US dollar helped to lift the precious metal’s investment appeal.

INDICATIVE MAJOR CURRENCIES Last Close 8.02 am Snapshot Expected Range for Today Bid Offer Low High USD/MYR 4.0200 4.0020 4.0400 4.0000 4.0450 JPY/MYR 3.6867 3.6660 3.7040 3.6500 3.7300 SGD/MYR 2.9371 2.9130 2.9490 2.9100 2.9700 EUR/MYR 4.5555 4.5280 4.5680 4.5000 4.6000 AUD/MYR 2.9511 2.9230 2.9600 2.9100 2.9800 GBP/MYR 5.8177 5.7880 5.8260 5.7600 5.8800 USD/JPY 109.04 108.93 109.34 108.53 109.53 EUR/USD 1.1332 1.1160 1.1470 1.1260 1.1370 AUD/USD 0.7341 0.7160 0.7470 0.7270 0.7370 Source: Bloomberg, AmBank