Weekly FX Update, 30 May 2016

Good Morning!
v  Yellen: an interest rate hike is “probably” appropriate in the coming months if economic data improve v  EUR dips to its lowest since Mar 2016 against the rebounding USD due to weak dataflow v  Yen trades in a tight range with a depreciation bias v  Asian currencies broadly on strong bid tone as equity flows turn supportive and currency volatility ease v  RM gains marginally due to decline in 1M vol, fall in 5Y CDS and recovery in oil prices
Fed hawkishness was visible across the week, helping the US dollar to strengthen against major currencies. One of the keynote speeches was from Fed Chairwoman Janet Yellen, who said an interest rate hike is “probably” appropriate in the coming months if economic data improve. Meanwhile, the upward revision on US’s first quarter GDP also helped to support the US dollar. GDP rose at 0.8% rate in the first quarter, up from an initial 0.5% reading, supported by the stronger home building and a steady increase in inventory investment by businesses. The currency has been on appreciation bias this month as the world’s largest economy has shown renewed signs of vigor and Fed Reserve has played up the possibility of an imminent interest rate hikes as early as June 2016. Euro dipped to lowest of 1.1115 on Friday – its lowest level since 16th March 2016 against the rebounding US dollar given the surprise erosion in German investor morale in May. Trepidation over Britain’s future in the EU weighed on investor confidence in Europe’s biggest economy – Germany, as the ZEW index dipped to 6.4 this month compared to forecasts of 12 from 11.2 in April. The preliminary reading on Markit Composite PMI which showed the currency bloc’s private sector dropped to 52.9 in May – a 16-month low, also contributed to the weakening of euro against the US dollar. Japanese yen traded in a tight range with a depreciation bias after the Group of Seven meeting of the world’s top finance officials and central bankers signaled a red light for Tokyo to intervene to weaken its currency. The currency also caught a counter-intuitive boost from disheartening Japanese trade data that showed big declines in imports and exports, worrisome signs for global growth that stoked demand for safe havens. Asian currencies broadly traded on strong bid tone toward later part of the week but in tight liquidity conditions. Equity flows turned supportive especially in Northeast Asia while currency volatility eased, in turn drove most of Asian currencies breaking downside support levels. Leading the gains were Korean won, Taiwanese dollar and Indian rupee. Korean won gained 0.91% against US dollar as foreign buying pushed KOSPI to test above 1960 level, while Taiwanese dollar rose 0.74% against US dollar partly in response to positive euphoria of post-inauguration of President Tsai while Indian rupee closed higher on increased selling of the US dollar by exporters and banks amid higher foreign inflows. Ringgit Malaysia gained marginally by 0.04% to close below 4.080 after hitting the week’s high of 4.1210 due to declining 1-month volatility, falling 5-year credit default swaps (CDS) rate and the recovery in crude oil prices which is testing the US$50/barrel level. Elsewhere, relatively stable equity markets, contracting cross SGD/MYR, supportive CPO future prices and lower CNY fixing towards later part of the week also played stabilizing role to the currency.
Market Movers for the Week v  From US:  PCE Price Index (Apr), Personal Income (Apr), Personal Spending (Apr), ADP Employment Change (May), ISM Manufacturing PMI (May), Fed Beige Book, Balance of Trade (Apr), Non-Farm Payrolls (May), Unemployment Rate (May), ISM Non-manufacturing PMI (May), Fed’s Officials Speeches. v  From Eurozone: Eurozone Business Confidence (May), Eurozone Loan Growth (Apr), Eurozone Unemployment Rate (Apr), ECB Interest Rate Decision, Eurozone Retail Sales (Apr), Germany Inflation Rate Preliminary (May), Germany Unemployment Rate (May). v  From Asia: PMI for May (China, Korea, Taiwan, Indonesia, Singapore, Malaysia), Japan Retail Sales (Apr), Japan Unemployment Rate (Apr), Japan Consumer Confidence (May), Korea Retail Sales (Apr), Korea Inflation Rate (May), Korea Balance of Trade (May), Thailand Industrial Production (Apr), Thailand Inflation Rate (May), Indonesia Inflation Rate (May), Malaysia BNM Monthly Report (Apr), Malaysia Balance of Trade (Apr). v  Public Holiday: US – Memorial Day Holiday (Monday), UK – Spring Bank Holiday (Monday). v  Global Event: European Business Summit (1st and 2nd June), OPEC Meeting (2nd June).
INDICATIVE MAJOR CURRENCIES Last Close 8.20 am Snapshot Expected Ranges for Today Bid Offer Low High USD/MYR 4.0780 4.0760 4.1110 4.0740 4.1190 JPY/MYR 3.6969 3.6760 3.7110 3.6600 3.7400 SGD/MYR 2.9561 2.9470 2.9810 2.9400 3.0000 EUR/MYR 4.5327 4.5270 4.5640 4.5000 4.6000 AUD/MYR 2.9288 2.9190 2.9540 2.9000 2.9800 GBP/MYR 5.9633 5.9620 6.0000 5.9400 6.0500 USD/JPY 110.31 110.63 111.04 110.23 111.23 EUR/USD 1.1115 1.0950 1.1260 1.1050 1.1160 AUD/USD 0.7182 0.7020 0.7330 0.7130 0.7230 Source: Bloomberg, AmBank