Global forex market

by **Cals** Mon 25 Nov 2013, 01:48

Published: Saturday November 23, 2013 MYT 12:00:00 AM
Updated: Saturday November 23, 2013 MYT 7:18:36 AM
Global forex market

THE release of the US Federal Reserve’s Oct meeting minutes which indicated that the policymakers could decide to slow the pace of bond purchases at one of its next few meetings if the economic recovery gathers momentum was the key turning point for US dollar.
The US dollar index rebounded from a low of 80.704 on Tuesday testing to break the 100-day moving average of 81.222 as US yields climbed to the highest level in more than three years compared with those of the G-7. Driven by development in the US markets and uncomfortably low inflation, the euro fell from its strongest level in two weeks towards critical support of 1.3380. German producer prices fell 0.7% on-year in October, faster than the 0.5% decline in September.
Maintaining its elevated levels the US dollar-yen was holding above critical 100 along with bearish global equity markets. Risk averse market helped whet some safety appetite for the yen after global growth this and next year was marked down to 2.7% and 3.6% from an estimate back in May of 3.1% and 4% respectively as well as riding on markets concern that Japan will attempt to jawbone the yen lower to help an economy that thrives on exports. Exports fared better in October, soaring 18.6%, faster than forecasts of 16.5% and September’s increase of 11.5%. Exports were outpaced by a 26.1% surge in imports, causing Japan to log a 1.09 trillion-yen trade deficit gap for the month.
South-East Asian currencies fell most with the baht leading the pack with 0.66% drop against the US dollar on the back of domestic political concerns and lackluster growth, followed by the 0.62% of the rupiah due to the US dollar month-end demand, persistency in current account deficit and economic growth moderation and 0.43% of the peso. North-East Asian currencies were relatively stable, riding on China’s PBOC Zhou Xiaochuan’s promises in a guide book on the Third Plenum that the central bank will increase two-way flexibility in the yuan exchange rate. He also said there would be less intra-day forex intervention to enable the establishment of a market-based free-floating exchange rate. Talk of a gradual band widening raised the bets of stronger yuan as seen in a record low US dollar-yuan fixing of 6.1305 along with the one-year NDF. The NDF saw a sharp pullback to a low of 6.1363 before steadying around 6.1455.
The ringgit (MYR) ended the week with depreciation bias on overwhelming external influences. It hit the week’s low of 3.1790 on Tuesday before rebounded to trade above 50-day moving average of 3.1904, ignoring the positive news-flow from rating outlook upgrade by Moody’s. It raised rating outlook from stable to positive and the change in the outlook was attributed to improved prospects for fiscal consolidation and reform and continued macroeconomic stability in the face of external headwinds.
UST market
US Treasuries (UST) sold off at the long end of the curve following comments from St Louis Fed president Bullard and the release of the November FOMC minutes that tapering will start earlier than expected. At the point of writing, the two-year yield declined 2 bps w/w to settle at 0.27%, while the five- and 10-year yields increased 2 and 8 bps w/w respectively to settle at 1.36% and 2.78%.
Malaysian bond market
The local govvies traded in thin volumes throughout the week. Despite Moody’s positive news flow on Malaysia, buying momentum on Malaysian Government Securities (MGS) was brief due to lack of fresh flows. The newly issued 10.5-year Government sukuk with a size of RM4bil garnered a weak bid-to-cover ratio of 1.676 times at the average yield of 4.444% and a wide spread of 4.35% to 4.52%. This prompted selling on few selected maturities across the yield curve.
Benchmarks MGS yields traded higher by 2-28 bps. As of Thursday’s close, yields on 3-, 5-, 7-, 10-, 15-, 20- and 30-year MGS stood at a respective 3.15%, 3.63%, 3.99%, 4.04%, 4.29%, 4.5% and 4.78%%. RM6.1bil worth of trades changed hands with a daily average trading volume of RM1.5bil compared with last week’s RM3.1bil.
On private debt securities market, secondary market was muted with yields generally on the upward trend. Investors’ interest continued to be skewed to the GG/AAAsegment with total trading volume of RM906mil compared with RM2.3bil previously. Seventy-eight per cent of the volume was contributed by the GG/AAA segment, 20% by the AA segment and the remaining in the single A segment. Average daily volume was RM227mil versus RM469mil.
In the GG/AAA segment, notable trades done among the quasi bonds includeMalaysia Debt Ventures ‘08/17 which saw yield increased 4 bps to close at 3.65% with RM110mil done and Cagamas bonds maturing 2018-2028 had a collective trading volume of RM186mil.
Bank guaranteed NUR Power bonds maturing 2018-2020 saw RM75mil worth of trades done with yields higher by 4-14 bps from last levels. Along the AA curve, it was a lackluster trading week. Notably saw Weststar Capital bonds maturing 2017 and 2018 traded unchanged at 4.7% and 4.82% respectively. Elsewhere, Gamuda bonds maturing 2015-2018 had a collective trading volume of RM30mil with closing yields relatively unchanged.
MYR IRS market
The IRS (interest rate swap) was higher by 1-4 bps due to higher UST yields that tapering may start sooner than expected after the release of the FOMC November minutes.

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