Global forex market

by **Cals** Mon 21 Sep 2015, 04:54

Global forex market

Saturday, 19 September 2015

THE US dollar weakened against broad currencies as the FOMC remained on hold with cautious US data added to the tone. The Fed funds rate was left on hold and the “dot plot” projections were lowered by 25 basis points across the board. However, the Fed is still keen on imminently lifting the fed funds rate, with Yellen specifically mentioning that October was a possibility and that they expected to start hiking this year.
The euro appreciated against US dollar supported by US Federal Reserves’ decision to leave the range for the Fed Funds rate unchanged and positive euro data. The euro zone trade surplus for July widened to 22.4 billion euros, the second highest monthly surplus on record, on the back of strong exports.
Japanese yen was steady to easing bias against the greenback in response to the sovereign rating downgraded by Standard & Poor’s and the weaker-than-expected data flows.
S&P’s lowered Japan’s sovereign debt rating to A+ from AA-, highlighting the concern on Japan’s economic prospects nearly three years after Prime Minister Shinzo Abe took power. This is also the latest action to downgrade Japan’s sovereign rating by major credit-rating companies following Moody’s and Fitch.
The widening trade deficit of Japan also added pressure to the currency, as exports showed slower pace of growth in August when compared to July. Asian currencies ended the week with a positive bias against US dollar. Leading the gain were the ringgit, followed by Korean won and Taiwanese dollar.
The strengthening of both Korean won and Taiwanese dollar was on the back of equity-related inflow as markets were betting that Fed will refrain from raising the interest rates.
Meanwhile, the increase of South Korea’s sovereign debt rating to AA- by S&P’s, cited the nation’s sound fiscal position and relatively strong economic performance, also helped to support the strengthening of Korean won.
The ringgit gained the most in five months against the US dollar, riding on the rally of local equity market that rebounded to stay above 1,650 level after the announcement of RM20bil stimulus programme from Prime Minister Datuk Seri Najib Tun Razak, drop in 1-month US$/RM volatility that closed below 16%, plunged in Malaysia 5-year CDS from the high of 195 to 172 level, and the drop in 1-month MYR NDF rate.
Najib announced that RM20bil will be injected into state equity investment firm ValueCap to shore up the stock market by investing in undervalued Malaysian companies.
At the same time, he also announced another 15 economic measures to shore up the stock and capital markets.
Meanwhile, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz’s reaffirmation that Malaysia was not undergoing an economic crisis also helped to support the ringgit against the greenback.
UST market
US Treasuries yields eased across the curve in response to Federal Reserve decision to hold its interest rate unchanged. On Friday’s 11am pricing, the 2-, 5- and 10-year UST traded at 0.68%, 1.47% and 2.18%.
M’sian bond market

Local govvies rallied across the curve in reaction to the outcome of the Fed monetary policy meeting and stronger ringgit. The week saw the new issue of 3.5-year MGS ‘03/19 which garnered a bid-to-cover ratio of 1.528 times at an average yield of 3.759%
Local govvies saw RM14.3bil trading volume, translating into daily average of RM4.8bil.
This was higher compared to preceding week of total value of RM7bil traded, equivalent of daily RM1.7bil. On Friday’s 11am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 3.74%, 3.82%, 4.06%, 4.15%, 4.55%, 4.66% and 4.83%.
In the secondary PDS market, we saw a lower volume in trading activities this week compared to last week. Total trading volume for the week stood RM0.5bil, averaging RM168mil daily compared to last week’s average of RM378mil.
About 64% of the trading volume was contributed by the GG/AAA segment, 35% by the AA segment, with the remaining by the A segment.
In the GG/AAA segment, 2024-2034 tranches Danalnfra Nasional Berhad bonds traded mixed to close at the range of 4.58% to 4.88% with a collective trading volume of RM30mil. Meanwhile, Danga Capital Berhad ‘04/16 and ‘04/20 remained unchanged to close at 4.06% and 4.25% with RM80mil done.
The AAA rated Gulf Investment Corporation G.S.C ‘03/16 saw yield increasing 7 basis points to settle at 3.99% with RM62mil changing hands.
Trading activities in the AA segment this week were lower compared to the preceding week with 2015-2026 tranches Anih Bhd trading at 0-25 basis points to close at 3.92% to 4.99% with a collective trading volume of RM23mil.
BGSM Management Sdn Berhad ‘12/15 saw yield remaining unchanged to close at 4.23% with a trading volume of RM20mil. IJM Corporation Bhd ‘10/15 was unchanged at 3.79% with a total trading volume of RM45mil.
Ringgit IRS market
The IRS curve shifted downward across the curve following the rally in the local govvies. The 3-month KLIBOR kept unchanged at 3.73% this week.
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