Global Foreign Exchange Market

  • Forex
  • Saturday, 07 Sep 2019

Amid a short working week with the Labour Day break on Monday, the dollar weakened by 0.51% to 98.41 due to global risk-on sentiment as Washington and Beijing agreed to hold high-level talks in October, raising hopes of a de-escalation in trade tensions that has battered global economic growth.

Besides, the global risk-on sentiment was partially supported by: (1) easing political tensions in Hong Kong after leader Carrie Lam announces the withdrawal of the controversial extradition bill; and (2) easing likelihood of no-deal Brexit. Nevertheless, economic release during the week were rather mixed with: (1) August ISM manufacturing figures slightly disappointing at 49.1 from July’s 51.2 (cons: 51.1), slipping into the contraction region for the first time in three years; (2) private payrolls in the US climbing 195,000 in August from 142,000 in July (cons: 149,000); and (3) ISM non-manufacturing PMI surging to 56.4 from July’s 53.7 (cons: 54.0).

Brent crude oil edged up 0.86% to US$60.95/bbl fuelled by larger-than-expected crude oil supplies cut as much as 4.8 million barrels for the week ending Aug 30 as reported by the EIA (cons: 2.5 million). Apart from that, improved risk sentiment from de-escalation of the US-China trade tension partly acted as a catalyst to Brent crude oil. Year-to-date, the crude oil price has risen 11% amid a protracted trade dispute between the US and China. In addition, Opec+ is meeting in Abu Dhabi in the upcoming week to review its progress in stabilising world oil markets.

The euro witnessed a see-saw trading session – breaching below the 1.10 levels at the start of the week. However, it managed to rebound quickly after risk-on sentiment permeated globally. By the end of the week, the euro closed 0.48% higher at 1.104. Besides, political tensions in Italy eased after Italian Prime Minister Giuseppe Conte unveiled his new cabinet on Wednesday, uniting two rival political parties in an unlikely coalition that is expected to improve ties with the EU, and adopt a softer stance on immigration.

The pound was the biggest winner among its G7 peers for the week, appreciating by 1.46% to 1.233 after the majority of UK lawmakers, including opposition politicians and “rebel” members of the ruling Conservative Party, voted 328 to 301 to take control of the parliament to prevent a no-deal Brexit after Prime Minister Johnson announced a suspension of the parliament from mid-September to mid-October. Despite facing three consecutive defeats, Johnson hardened his stance on Brexit, citing he rather be “dead in a ditch” than to delay his promise.The demand for the Japanese yen softened, down 0.62% to 106.9 underpinned by global risk-on sentiment as a result of: (1) improving trade sentiment after the US and China agreed to hold talks in October and promising to make “substantial progress”; (2) Hong Kong’s Carrie Lam announcing the withdrawal of the controversial extradition bill; and (3) easing fears of a no-deal Brexit. Meanwhile, economic release highlighted that the strength in the services industry is offsetting the deteriorating operating conditions in the manufacturing sector.

The majority of Asian ex-Japan currencies appreciated against the weaker dollar save for the rupee and baht, which fell by 0.61% to 71.8 and 0.12% to 30.7, respectively. The weaker rupee is partly due to stronger crude oil prices, added with a strong foreign outflow of US$708mil from its equity market. Meanwhile, the Chinese yuan climbed by 0.11% to 7.1489 following Beijing’s strong efforts to resolve trade tension.

The ringgit recorded a notable gain of 0.43% to 4.187 against the weaker dollar amidst tracking the yuan. However, the local bourse continued to fall by 0.8% to 1,600 while recording an outflow of RM198mil. Meanwhile, economic release for the week included: (1) August Manufacturing PMI deteriorating further to 47.4 from 47.6 in July – the demarcation between expansionary and contractionary is 50; (2) July export rebounding by 1.7% y-o-y compared with -3.1% y-o-y in June; (3) July imports recording a smaller declines of 5.9% y-o-y vs. -9.2% y-o-y in June; and (4) July trade surplus widening to RM14.3bil from RM10.5bil.

US Treasuries (UST) Market

Over the weekend, the US began imposing 15% tariffs on a variety of Chinese goods while China began imposing new duties of 5% on US crude marking the first time fuel had been targeted since the trade war began. However, trade tensions were shortlived following hopes of a de-escalation after the US and China agreed to hold high-level talks in October. As a result, the US Treasury curve steepened with yields rising 6–8bps at the back end of the curve. In addition, the switching from safe papers to risk assets was partially supported by Hong Kong’s Lam announcement of the extradition bill withdrawal and the easing likelihood of a no-deal Brexit. It was also supported by better-than-expected economic data release indicating consumption growth remained resilient despite moderating global growth i.e. (1) private payrolls in the US climbing 195,000 in August; and (2) ISM non-manufacturing PMI surging to 56.4 from July’s 53.7 (cons: 54.0). As at Friday noon, the 2-, 5-, 10-, and 30-year benchmark yields settled at 1.54%, 1.44%, 1.57% and 2.07%, respectively.

Malaysian Bond Market

Resuming the week after a long weekend in the local market, trading activities were rather tepid with the absence of fresh flows amidst risk-on sentiment permeating globally. The MGS curve steepened slightly with the back of the curve adding 1.5-4.5bps. Meanwhile, the GII curve rose higher with yields adding 1bps across the curve, while the 20-year tenure was 4bps higher. As at Friday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.12%, 3.23%, 3.27%, 3.32%, 3.53%, 3.63% and 3.86%, respectively.

Activities in govvies slowed down by 46% w/w to RM9.1bil in the current week compared with last week’s RM16.8bil due to a lower volume in the MGS and GII space. Conventional govvies trading activities declined 37% to RM5.8bil from RM9.2bil, contributing 63% of the total volume trade while the GII constituted 34% of the flows at RM3.1bil from RM7.1bil in the prior week. The PDS space narrowed by 54% to RM1.4bil from RM3.0bil. The GG/AAA segment contributed 33% of the trading space while the AA segment accounted for 65% and the remaining 2% was from the others segment.

Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) IMTN 2023–2034 tranches dominated the GG/AAA list with RM155mil traded between 3.301% and 3.629%. These were followed by DanaInfra Nasional Bhd IMTN 2033–2041 papers which gobbled up RM70mil with yields firming at 3.569% and 3.750%. Next were Pengurusan Air SPV Bhd 2021–2029 tranches which changed hands between 3.338% and 3.609% amounting to RM70mil.

Meanwhile in the AA segment, Jimah East Power Sdn Bhd IMTN 2027–2032 tranches traded at 3.947%–4.229% on the back of RM260mil. Also, CIMB GROUP HOLDINGS BHD ‘12/25 and ‘09/29 papers settled at 3.448% and 3.906%, respectively on top of RM130.25mil. Last but not least were GAMUDA BHD IMTN 2020–2023 tranches which saw RM130mil flowed through between 3.570% and 3.828%.

MYR Interest Rate Swap (IRS) Market

The IRS curve eased averagely 0.5bps across the curve, with the 10-year falling the most by 1.5bps. As at Friday’s noon pricing, the 3-month Klibor stood firm at 3.40%. Elsewhere, the five-year CDS dropped 9.3% to 46.45bps.

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