Weekly FX Update, 16 May 2016

v  US dollar strengthens on the back of hawkish comments from few FOMC voting members v  Euro weakens as bearish macro flows continue to highlight the bloc’s weak fundamental shape v  Yen depreciates as BoJ minutes raise the possibility of additional easing v  The CNH sell-off helps to lift USD/Asia ex-Japan currency broadly higher v  Selling pressure on Malaysia ringgit continues over equity selling by foreign investors and weaker macro numbers
The U.S. dollar attempted to embark on a new winning streak after its previous one was halted on Wednesday as investors cashed out some gains. The greenback found a tail wind in May as the markets was rethinking future course for Federal Reserve policy as hawkish squawk from several Fed officials have been keeping hopes flickering for a rate hike in the months ahead. The jobless claims for the week of May 7 spiked unexpectedly to 294k – the highest level since week of February 28, 2015 along with higher crude oil prices drove US dollar bulls to be on cautious side of the coin. Nearly all of the weekly increase in initial claims was driven by New York State, where claims rose 23k week-on-week in seasonally adjusted terms. The increase in New York claims was likely related the Verizon worker strike, which began on April 13. Nevertheless, traders were inclined not to push the currency beyond its recent multi-month troughs on suspicions that U.S. growth may be on the cusp of a pickup.  Buying momentum petered out, giving way to a new round of profit-taking in later part of the week. Euro eased off after spending the past week dribbling from eight-month peaks with the limited guidance from European data this week as the currency looking elsewhere for cues. Global stock gains didn’t help the Euro’s cause, as it whet appetite for risk at the expense of low-yielders like the single currency. European equity markets were trading lower as were US stock futures along with bearish macro flows highlighting the bloc’s weak fundamental shape which could require more stimulus from the European Central Bank. Japanese yen was heading to test 109 after hitting recent low of 106.3 in response to the release of Bank of Japan (BoJ) minutes for its April meeting. It showed that the BoJ is still assessing the impact of previously introduced negative rates and it has raised the possibility of additional easing given that risks continue to be skewed to the downside. Alongside the bounce in USD/JPY, the CNH sell-off helped to lift USD/Asia ex-Japan currency broadly higher. USD/CNH has moved above the 6.550 level (3 big figures) as markets expecting paring of credit growth in April after an "authoritarian voice" have highlighted risks of credit growth without structural reforms. The Chinese Communist Party is now officially worried about mounting debt. “A tree cannot grow up to the sky - high leverage will definitely lead to high risks,” said a front-page commentary in the People’s Daily on May 9. Leading the losses were Korean won (-1.46%), Singapore dollar (-0.79%) and Thai baht (-0.79%) as respective equity markets remained under selling pressure despite broad decline in the currency volatility. Selling pressure on Malaysian ringgit continued over equity selling by foreign investors and weaker macro numbers. Industrial production eased to 2.8% in March 2016 from 3.9% a month before along with softer manufacturing PMI that stood at 47.1 points in April from 48.4 points in March. Elsewhere, Malaysia GDP expanded 4.2% from the same quarter a year ago, slower than the 4.5% growth registered in the previous quarter and the slowest pace of growth since 2009. The selling pressure however was moderated by recovery in crude oil prices as it hit 7-month high of US$47.6/barrel as IEA reports expect non OPEC supply to fall while global demand to rise more-than-expected along with declining currency volatility. The 1-month USD/MYR volatility moderated from week’s high of 11.05% to close below 10.86% respectively.
Market Movers for the Week v  From US: NAHB Housing Market Index (May), Core Inflation Rate (Apr), Inflation Rate (Apr), Building Permits (Apr), Housing Starts (Apr), Industrial Production (Apr), FOMC Minutes, Existing Home Sales (Apr), Fed’s Officials Speeches. v  From Eurozone: Eurozone Balance of Trade (Mar), ECB Governing Council Meeting, Eurozone Inflation Rate Final (Apr), ECB Monetary Policy Meeting Accounts, Eurozone Current Account (Mar), UK Inflation Rate (Apr), UK Unemployment Rate (Mar), UK Retail Sales (Apr). v  From Asia: Japan Machine Tools Orders (Apr), Japan Industrial Production Final (Mar), Japan GDP Growth Rate Preliminary (1Q 2016), China House Price Index (Apr), Taiwan Export Orders (Apr), Thailand GDP Growth Rate (1Q 2016), Indonesia Balance of Trade (Apr), Indonesia Interest Rate Decision, Singapore Balance of Trade (Apr), Malaysia Inflation Rate (Apr), Malaysia Interest Rate Decision.   v  Global Event: G7 Finance Ministers and Central Bank Governors’ Meeting.
INDICATIVE MAJOR CURRENCIES Last Close 8.25 am Snapshot Expected Ranges for Today Bid Offer Low High USD/MYR 4.0310 4.0250 4.0600 4.0230 4.0680 JPY/MYR 3.7108 3.7000 3.7360 3.6900 3.7600 SGD/MYR 2.9376 2.9250 2.9610 2.9200 2.9800 EUR/MYR 4.5587 4.5530 4.5900 4.5300 4.6200 AUD/MYR 2.9309 2.9270 2.9620 2.9100 2.9900 GBP/MYR 5.7905 5.7830 5.8220 5.7600 5.8700 USD/JPY 108.63 108.54 108.95 108.14 109.14 EUR/USD 1.1309 1.1150 1.1460 1.1250 1.1360 AUD/USD 0.7271 0.7130 0.7440 0.7240 0.7340 Source: Bloomberg, AmBank