Global forex market
THE US dollar ripped after the Federal Open Market Committee (FOMC) statement was more hawkish than expected.
The decision to end Quantitative Easing (QE) 3 asset purchases with a final US$15bil taper was largely priced in but the committee dropped its reference to “significant” under-utilisation of labour resources introduced in July and that qualified as a hawkish innovation.
Post-FOMC along with month-end flow, the euro/US dollar broke through trend line support 1.2705 to trade towards an important test at the 1.2614/1.2592 area to define if the currency can see a retest/break of the critical 1.2500 low.
Once again, the rally for US dollar/yen has taken on a more impulsive bias as it broke the 108.95 resistance area (76.4% retracement) towards 109.07 to allow for a closer test, if not break of the October peak. The pair’s rise, however, was tempered by exporter selling, profit-taking and selling the yen crosses. Commodity currencies also shifted with a bearish turn with impulsive bias, if whether a deeper short-term corrective phase can develop.
South-East Asian currencies suffered heavy losses against the US dollar, along with foreign funds continued selling-off equities and rising US yields. The ringgit (MYR) led the losses with 0.37% drop against the US dollar followed by the baht of 0.33% and the rupiah of 0.3%, respectively.
The MYR gapped up towards 3.290 from average 3.274 in pre-FOMC meeting, along with the rising trend in the one-month NDF, which is within striking distance of the 3.300-figure, despite a sharp drop in volatility from a peak of 8.132% two weeks ago to latest 6.47% and selective equity buying by local funds.
Despite the spike in the US dollar/MYR, the Singapore/MYR has remained relatively resilient. Cross was last seen edging higher around 2.5731 but was still well within its current tight trading range of 2.563-2.575. The MYR is just under the swing high in October of 3.2908.
On the macro front, Malaysia may miss the 2020 deadline set for the high-speed rail link between Kuala Lumpur and Singapore even after using government land as much as possible, according to Land Public Transport Commission.
Malaysia is reported to have a three-tier fuel subsidy rationalisation programme subjected to different income groups with those income of RM10,000 and below to be sheltered by varying degrees. The key focus will be on Bank Negara’s meeting next Thursday where policy rate is expected to be left unchanged at 3.25%.
US Treasuries (UST) mostly sold off after the Fed confirmed the end of its asset purchasing programme amid signs of a strengthening economy. At press time, the two-, five- and 10-year yields spiked 4-9 basis points week-on-week at 0.47%, 1.57% and 2.3%.
Malaysian bond market
Trading interest was seen for certain benchmark bonds this week. Among the local govvies, 10-year Government Investment Issues (GII) saw the most trading volume in the Islamic market whereas the seven- and 15-year Malaysia Government securities (MGS) saw increased trading activity by both local and foreign investors. However, the more hawkish tone by the Fed caught market players off-guard as markets were expecting a more neutral and dovish stance from the FOMC meeting. As a result, local govvies were slightly weaker as yields moved up slightly.
Tender result on the re-opening of the three-year GII reported a decent bid-to-cover ratio of 2.128 times with yields coming out 1 bp lower than the initial issuance in May. High, average and low yields were at 3.678%, 3.667% and 3.655%, respectively.
The week saw RM11bil trading value, translating into daily average of RM2.7bil. This compared with the previous total value of RM7.8bil, equivalent of daily RM1.9bil. As of Thursday’s close, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark MGS settled at a respective 3.5%, 3.63%, 3.77%, 3.81%, 4.15%, 4.25% and 4.63%.
It was a fairly quiet week in the private debt securities (PDS) market with most of the trading activity believed to be from month-end asset allocations. Total trading volume for the week was at RM2.5bil, averaging at RM634mil daily compared with last week’s RM460mil. Forty-seven per cent of the trading volume was contributed by the GG/AAA segment, and 53% by the AA segment.
In the GG/AAA segment, secondary activity was mostly concentrated among the AAA bonds. Sime Darby ‘11/16 garnered RM120mil worth of trades, yields eased 8 basis points to 3.78%. A slew of Aman Sukuk bonds maturing 2017-2021 had a collective trading volume of RM110mil, closed at the range of 3.85%-4.36%. Aquasar Capital ‘07/16 traded unchanged at 4.11% whereas its long-end maturity ‘07/28 and ‘07/29 both eased 2 basis points to 4.73% and 4.82%, respectively.
Over in the AA-segment, markets interest were scattered across various sectors in relatively small trading volume. UEM Sunrise ‘12/18 and ‘06/21 traded unchanged to close at 4.43% and 4.68%, respectively. A slew of Kesas bonds maturing 2017-2021 traded within previous ranges between 4.2%- 4.53%.
MYR IRS market
Due to the weaker global bond sentiment, MYR IRS traded 1-2 basis points higher. KLIBOR stayed relatively stable for the review period with three-month KLIBOR at 3.76% level.
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