THE minutes from the Federal Reserve didn’t do much favour for US dollar but it also didn’t serve as fresh catalyst to sell the buck as well.
The minutes showed that the Fed voting members are largely divided in the most recent meeting. Several Fed officials, saying they backed a cautious approach to raising interest rates, “noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” the minutes said. At the same time, some other Fed officials spoke in favour of an April rate hike. Fed officials were also concerned about the fragile state of the financial markets and the global economy, the minutes added.
Euro depreciated slightly against the US dollar after the European Central Bank (ECB) minutes showed that policymakers saw the scope for further interest rate reductions if the inflation outlook worsens. “The proposed limited rate cut could be judged as appropriate for now, given the current assessment, while it would also not rule out the possibility and prospect of further cuts if warranted by the outlook for price stability,” the minutes said. Disappointed services sector data also resulted in the weakening of euro against the US dollar. Euro area services sector in March expanded at the slowest pace in 15 months, revised down from an earlier reading of 54 following the negative revision in Italy, France and Germany.
The yen broke the 110 supporting level and touched its highest level against the US dollar since October 2014 after Japanese officials signaled they wouldn’t intervene in an attempt to weaken their currency. “Whatever the circumstances, we must definitely avoid competitive devaluation, and I think we should refrain from arbitrary intervention in currency markets,” Prime Minister Shinzo Abe said in an interview.
Elsewhere, the yen also benefited from the demand on safe haven currency as the worries about global economy resurfaced.
Asian currencies were on depreciation bias against the US dollar as global risk sentiment deteriorated. Leading the loss were ringgit, Philippine peso, Taiwanese dollar, and Indian rupee. Depreciation of peso, Taiwanese dollar and the rupee was mainly due to the selloff in local equity markets as foreign investors unload some of their holdings in riskier assets to seek for quality. Elsewhere, the decision of India’s central bank to reduce its key interest rate to its lowest level in 5 years also contributed to the depreciation bias of the rupee against the greenback.
The ringgit weakened against the US dollar as the concern about a global slowdown put pressure on the ringgit. Besides that, the surge in the cross SGD/MYR from the low of 2.86 during the week to close above 2.90 level, the increase in the 1-month MYR non-deliverable forward rate (NDF) and the high Malaysia 5-year credit default swap rate also contributed to the selloff of ringgit against the greenback. On the macro front, Malaysia’s export growth in February rebounded by 6.7% y/y after posting a negative growth of 2.8% in January, as exports of manufactured goods registered a double digit growth. Imports grew 1.6% on yearly basis and the trade surplus widened to RM7.35bil. Elsewhere, international reserves of Bank Negara amounted to US$97bil in March, up from US$95.6bil recorded in February.
US Treasury yields edged lower after FOMC minutes showed reluctance to raise rates anytime soon amid concerned over slowing global growth. On Friday’s 11:00 am pricing, the 2-, 5- and 10-year UST traded at 0.70%, 1.16% and 1.71%.
M'sian Bond Market
Local govvies saw short-end of the yield curve edged higher in response to a weaker ringgit. The week saw the re-opening of 7-year GII ‘07/23 which came in with book-to-cover ratio of 2.69, driven by strong buying interest from on-shore players especially from Islamic banks at an average yield of 3.923% with an issuance size of RM3.5bil.
Local govvies saw RM13.3bil trading volume, translating into daily average of RM3.3bil. This was lower compared to preceding week daily average of RM4.6bil. On Friday’s 11:00am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 3.19%, 3.40%, 3.74%, 3.82%, 4.11%, 4.32% and 4.63%.
In the secondary PDS market, we saw a higher volume in trading activities this week compared to last week. Total trading volume for the week stood RM3.4bil, averaging RM860mil daily compared to last week’s average of RM808mil. About 65% of the trading volume was contributed by the GG/AAA segment and 32% by the AA segment with the remaining 3% in the A segment.
In the GG/AAA segment, Perbadanan Tabung Pendidikan Tinggi Nasional ‘08/26 and ‘02/28 saw yields eased lower at 14 and 2 basis points to close lower at 4.42% and 4.50% with a collective trading volume of RM80mil. 2016-2041 Prasarana bonds saw yields traded at mixed to settle at the range of 3.54%-4.90%, with a combined total of RM165mil changed hands. 2019-2031 Rantau Abang Capital bonds saw some demand with yield eased 1-22 basis points lower to settle at 4.03%-4.75%, with a total trading volume of RM235mil.
Elsewhere in the AA segment, 2023-2026 BGSM Management bonds saw yields traded lower within the range of 5-15 basis points to close at 5.05%-5.16%, with a collective trading volume of RM170mil. Meanwhile, 2020-2023 WCT Holdings bonds saw yield eased 1-12 basis points to close at 4.87%-5.07%, with a total RM55mil changed hands. On the other hand, Media Chinese International ‘02/17 saw yield eased by 10 basis points to settle at 4.12%, with a total trading volume of RM70mil.
As at Friday’s 11:00 am pricing, IRS curve shifted higher due to the increase in uncertainty over global outlook. Meanwhile, 3-month Klibor eased 1 basis point at 3.70% this week.
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