Global forex market

  • Forex
  • Saturday, 27 Apr 2013

GIVEN the stimulus measures of the Bank of Japan went unopposed at the G-20 meeting, investors took the opportunity to sell the currency taking the US dollar/yen pair but it failed to break the psychological 100 mark on the back of Dish outbidding Softbank's bid and the extreme dump resulting from the Boston terror attack.

Nippon Life, Japan's largest life insurer says it will buy less Japanese Goverment bonds this year and raise its allocation of unhedged foreign bond holdings. The disappointing price action has translated into a double top formation just shy of 100 and a move below 98.35/50 would be of much greater concern.

Prime Minister Abe's popularity rose further in April suggesting his economic policies are gaining broader support from voters. The Abe cabinet's job approval rating rose to 76% from 69% in April the highest level since late 2001 when then Prime Minister Koizumi had high popularity. Abe's job approval rating started at 62% in December and it has been rising since he took office very rare for Japanese prime ministers.

Headlines for the euro were mixed. On the data front, the eurozone debt-to-gross domestic product ratio for 2012 reported by the Eurostats revealed deficits soared to a record 90.6% despite the austerity measures. On the other hand, the advanced April reading from the consumer confidence report offered a modest tick higher. The euro, however continued to consolidate below 1.31 with strong support of 200 moving average of 1.2945. The peripheral spreads continuing to narrow for both real money and diversification flows.

On the global data flows, manufacturing and services Purchasing Managers' Indices (PMI) came in well below expectations, underscoring the fact that the recent run of poor fundamental data is broad, and pointing to a much bleaker outlook than the world's equity markets would otherwise suggest.

China's preliminary flash PMI reading for April pulled back to 50.5 from 51.6 in March, led by a drop in new export orders, suggesting demand for Chinese products from more developed nations is falling. PMIs from the eurozone confirmed the decelerating pace of demand, with the composite reading posting another month in contraction, printing at 46.5 from 46.8 previously. Germany, the strongest core nation, printed horrendous numbers that were well below expectations and all in contraction. Germany's manufacturing PMI came in at 47.9 from 49.0 previously, while the services PMI came in at 49.2 from 50.9 previously.

Thai baht tops the chart, depreciated almost 0.7% followed by Indian rupee of 0.4% and Philippines peso of 0.1% over possible central banks' intervention and risk of interest rates cut. North-East Asian currencies outperformed its South-East Asian counterparts, led by the Korean won appreciated 0.5%, Taiwan dollar note of 0.4% and the yuan of 0.2% respectively on the back of stronger data flows for electronics, and reduced tension in the Korean peninsula.

The ringgit continued to move higher as election jitters comes into play and failed to take much benefit from lower fixing of the yuan against the greenback. The one-month NDR edging higher to test 3.0650. In terms of macro data, the leading index (LI), which provides an early signal of the direction that the economy is heading, picked up to 1.4% month-on-month in February, following a moderation to +0.8% in January and compared with +1.3% in December. This suggests that economic activities will likely improve but the pace remains moderate and uneven in the months ahead.

UST market

US Treasuries (UST) generally traded unchanged during the week as better than expected economic data released in the United States. Initial jobless claims decreased by 16,000 to 339,000 in the week ended April 20 which is lower than the consensus estimates of 350,000 claims. Meanwhile, new home sales in the United States climbed 1.5% in March to 417,000, compared with median estimate of a rise to 416,000. At time of writing, yields on two-, five- and 10-year notes were seen settling at 0.23%, 0.7% and 1.7% respectively.

Malaysian bond market

The much anticipated details of new 10.5-year Government Investment Issues was announced. Despite larger-than-expected issue size of RM4bil, we believe the fresh wave of robust global liquidity would continue to provide support for upcoming tender together with healthy onshore liquidity.

On the local PDS market, total trading volume amounted to RM2.9bil, of which 44% came from the GG/AAA, 54% from the AA segments and the remaining trades from the single A segment. Daily average trade volume increased to RM718mil compared with RM597mil average previously.

In the GG/AAA segment, active trading was seen on PLUS bonds maturing 2020-2038 which garnered a trading volume of RM208mil with yields easing 2-13bps. Other notable trades was GB Services' 11/19, which generated a volume of RM55mil with yield decreased by 2bps.

In the AA band, trading interest garnered traction with investors continue to hunt for yields. Newly issued YTL Corp' 04/23 garnered volume of RM300mil with yield closed at 4.28%. Elsewhere, Noble bonds maturing 2014-2015 saw a collective trading volume of RM154mil, last dealt in the range of 4.02% to 4.18%.

MYR IRS market

The ringgit (MYR) interest rate swap (IRS) rates were traded within range as UST yields stabilised during the week. Volumes were below average while market avoided taking heavy position ahead for election result. The IRS curve ended the week relatively unchanged.

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