Treasury pulse - Dollar Index traded softer


THE dollar index which measures the US currency against a basket of six currency traded softer during the week under review.

Global forex market

THE dollar index which measures the US currency against a basket of six currency traded softer during the week under review.

It closed week lower by 1.04% to 92.059, marking the lowest in nearly three weeks, tracking the easing US Treasury yields after both FOMC meeting minutes and Fed chair Jerome Powell’s speech reaffirmed the Fed’s patience on keeping an accommodative monetary policy.

In the FOMC meeting minutes, Fed officials expect the economy to gain substantially, but they see much more progress is needed before adjusting the ultra-easy policy. Powell, on the other hand, suggested the threat of inflation in 2021 that has rattled bond buyers may not persist.

On a much positive note, President Biden announced that every adult in the US will be vaccinated by April 19, two weeks ahead of his initial schedule on May 1.

Separately, market players welcomed the IMF’s upward revision in global growth forecast to 6.0% in 2021 from its 5.5% forecast in January, a rate that has not been seen since 1970 (2020: -3.3%).

The US economy was projected to grow by 6.4% – the fastest since 1984 (2020: -3.5%).

Brent crude oil prices fell 2.56% to US$63.20 per barrel (Year-to-date average = US$61.5 per barrel) due to: (1) Covid-19 resurgence threatening demand recovery; and (2) speculations of Opec intending to increase production going forward as the US started to produce more in the shale fields.

The euro, which makes up almost 58% of the dollar index, benefited from the dollar’s decline.

It appreciated by 1.32% to 1.19, hitting the highest in nearly three weeks to emerge as the outperformer in the G10 space during the week under review.

However, domestic Covid-19 developments continued to show a lack of substantial progress.

German Chancellor Angela Merkel is reportedly in favour of a short nationwide lockdown to help stem rising coronavirus figures. The consideration came as Germany struggled to contain the third wave due to the sluggish vaccination campaign.

The pound nosedived 0.70% to 1.37, the weakest since March 25 due to further disruption to the UK’s vaccine rollout as well as the unwinding of long positions against the pound.

The UK’s pace of jabs has significantly slowed at the beginning of the month given delays in shipments from India and testing of 1.7 million AZ/Oxford doses. At this juncture, the supply constraints are expected to last through April. The yen posted its first weekly gains in two weeks, up 1.29% to 109.3, the strongest since March 26 following the narrowing interest rate differential against the US treasury yields.

Nonetheless, key economic data release this week pointed to an improving macro environment in the Japan. This includes: (1) March Consumer Confidence jumping to 36.1 versus 33.8 in February, marking a 13-month high; and (2) February preliminary leading index rose to 99.7 compared to 98.5 in January.

The Asia ex-Japan currencies’ performance was mixed.

The South Korean won came in as the outperformer, appreciating 0.92% to 1,117 benefiting from the lower US yields coupled with optimism on the IMF’s global growth outlook.

The rupee was the underperformer, falling 1.75% to 74.6 after the Reserve Bank of India’s announced that it will buy 1 trillion rupee of bonds in the secondary market under the G-Sec Acquisition Programme 1.0.

The ringgit eked out some gains, up 0.07% to 4.137, taking cues from the weaker dollar. Key economic data release this week includes: (1) February unemployment rate easing to 4.8% from 4.9% in January; (2) February IP; and (3) February retail sales.

In the IMF’s latest Malaysia’s economic assessment, GDP was forecasted at 6.5% in 2021 and 6.0% in 2022. (2021 BNM: 6.0% to 7.5%). Meanwhile, 2021 inflation, current account balance (% of GDP) and the unemployment rate are projected at 2.0%, 3.8%, and 3.8%, respectively (2020: -1.1%, 4.4%, & 4.5%).

US treasuries market

The US treasury yields fell across the curve with the benchmark 10-year falling 8.1bps to 1.619%, the lowest in nearly three weeks. Meanwhile, the 2- and 30-year yields dipped 1.8bps to 0.149% and 3.9bps to 2.307%, respectively.

The rapid buying momentum came after Fed members reaffirmed a patient monetary stance, citing more economic progress is needed before adjusting the ultra-easy policy while Powell suggested that the inflation threat in 2021 will be transitory.

As of noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.15%, 0.85%, 1.64% and 2.33%, respectively.

Malaysian bond market

Trading activity in the local market dwindled compared to the week prior with selective interest on the benchmark MGS papers. The 3-, 10-, and 30-year MGS fell 0.3bps to 2.125%, 4.7bps to 3.072%, and 1.2bps to 4.216%, respectively.

The remaining benchmark yields rose 1–4bps. Positively, foreign inflows into the local bond were sustained. Nonetheless, the focus of the week was on the 7-year MGS reopening auction.

The large issue size of RM4.5 billion saw decent demand from the street with the auction closed at a BTC of 1.590x, averaging at 2.963% with a high and low of 2.981% and 2.933%, respectively.

As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.13%, 2.57%, 2.94%, 3.05%, 3.78%, 4.06% and 4.22%, respectively. The govvies segment’s activities fell 29.2% w/w to RM14.7bil from last week’s RM20.8bil. The MGS segment slid 34.5% to RM9.3bil from RM14.1bil in the previous week. Trades in the GII segment declined by 22.1% to RM5.1bil from RM6.6bil.

Secondary trade volume improved slightly by 1.5% to RM2.0bil from RM1.9bil. The credit spread widened by 14.3bps on average across the curve.

The shorter end rose 27.1bps on average, while the longer end of the curve climbed 19.9bps averagely.

Ringgit interest rate swap market

The IRS curve flattened with the front end rising 0.5–1bps while the back end fell 1–3bps. The 3-month KLIBOR stood at 1.94%. Elsewhere, the 5-year CDS rose 7.2% w/w to 46.7bps.

Malaysian equity market

During the week (2–8 April 2021), the FBM KLCI gained 19.76 pts or 1.25% to 1,602.40 pts, outperforming slightly both the MSCI Emerging Markets Index (+0.61%) and the Dow Jones Industrial Average (+1.06%).

Globally, tech stocks were back in vogue as US bond yields eased on higher-than-expected US initial weekly jobless claims and dovish remarks from Powell.

Locally, investors chased up glove stocks on a technical rebound from oversold positions.

Foreign investors turned marginal net buyers in the local market. They bought a total of RM10.8mil worth of Malaysian equities during the week, which did little to reverse the YTD cumulative net outflow to RM1.7bil.

Local institutional and retail investors continued to dominate the market with a participation rate of 44.5% and 40.0% in April respectively (comparable to 44.1% and 39.4% in March respectively).

Foreign investors remained passive with a participation rate of 15.6% in April (compared with 16.6% in March).

Meanwhile, foreign investors piled into Malaysia Government Securities (MGS) for an 11th straight month with a net inflow of RM1.5bil in March 2021 (vs. RM3.5bil in February 2021).

Equity trading activities subsided with an average daily value traded (ADVT) of RM3.5bil in April (vs. RM5.0bil in March). Similarly, turnover velocity fell to 47.7% in April (vs. 67.8% in March).

During the week, 10 out of 13 sectors in Bursa Malaysia ended in the positive territory.

The best performing sector was Healthcare (+7.4%) backed by the rebound in glove stocks.

The worst performing sector was Energy (-1.7%) weighed down by the softening in oil prices.

In the coming week, investors will keep a close eye on:

>US CPI (March) on April 13;

>US retail sales (March) on April 15;

>China GDP (Q1) on April 15;

>China industrial production (March) on April 15;

>Eurozone CPI (Mar) on April 16.

For FX enquiries, contact: ambank-fx-research@ambankgroup.com, for Fixed Income enquiries, contact: bond-research@ambankgroup.com



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