Global Foreign Exchange Market
THE dollar appreciated by 0.12% to 95.5 over the week due to safe haven flows following renewed US-China trade tensions after the Chinese government announced additional tariffs of 25% on US$16bil worth of US imports ranging from fuel to medical equipment which are scheduled to take effect Aug 23. Furthermore, the rising geopolitical tension as the United States is set to impose new sanctions on Russia, coupled with the better-than-expected initial jobless claims that fell to 213,000 as of Aug 4 from 218,000 in the previous week have also further fuelled the dollar’s rebound.
In the commodity space, Brent crude dived 1.98% to close at US$72.29 per barrel due to the increase in production by Russia and Opec in July. Russian crude and condensate production rose by 150,000 barrels per day month-on-month, while Opec raised production by 340,000 barrels to 32.66 million barrels per day. It is also noteworthy that the Saudi output was at 10.63 million barrels per day, approaching the record high of 10.66 million. Later in the week, Brent recovered some losses as US sanctions on Iran took effect, coupled with the falling in US inventories which the API reported a decline of six million barrels as compared to the previous week, triggered mild supply concerns. However, the gains were diminished with the escalation of trade tensions which raised fears that the demand for oil will be slashed.
The euro fell 0.23% to 1.153 mainly due to the stronger greenback, coupled with the arising concerns over Italy’s move to raise spending and challenge the bloc’s budget rules. Furthermore, the Economic Bulletin released by the ECB on Thursday which highlighted a slower euro growth as compared to 2017, also added pressure to the pair.
During the week, the pound shed 0.93% to 1.282 as the possibility of a “no deal” Brexit dominated the headlines after BoE governor Carney cited that there was an “uncomfortably high” chance that the UK will not strike a deal with the EU. This was later supported by UK trade secretary Liam Fox, who warned of a 60% chance of the UK exiting the bloc without agreement.
The appetite for safe haven currency returns with the yen appreciating by 0.3% to 111.1 following the rising geopolitical tensions, added with Brexit concerns. Besides, the gains in the yen were partly supported by speculations over the Bank of Japan’s (BoJ) move to exit its aggressive monetary stimulus. On the data front, second quarter 2018 GDP preliminary estimates recorded a notable growth of 0.5% quarter on quarter (q-o-q) from a decline of 0.2% q-o-q in first quarter 2018 supported by improved household spending, which rose 0.7% qoq versus -0.2% q-o-q in 1Q2018.
The majority of the Asia ex-Japan currencies appreciated against the dollar save for the Philippine peso and Hong Kong dollar. The Philippine peso depreciated 0.2% to 53.0 due to strong inflationary pressure, which rose to 5.7% year on year (y-o-y) in July from 5.2% y-o-y in June. This prompted the central bank to raise rates by 50bps to 4.00%, marking 100bps in 2018. Simultaneously, the economy decelerated by 6.0% y-o-y from 6.6% yoy in first quarter 2018. Meanwhile, the Chinese yuan came in as the best performer for the week, gaining 0.5% to 6.821 after the PBoC stepped in to make betting against the currency more expensive.
The ringgit strengthened over the week by 0.1% to 4.075 against the dollar moving in tandem with the yuan. At the same time, some support came from our local bourse, which firmed 1.4% to 1805 while registering a net foreign inflow of RM485.2mil. Meanwhile, economic release includes: (1) June industrial production grew at 1.1%yoy from 3.0% y-o-y in May; (2) June retail sales expanding by 12.1% y-o-y compared to 9.3% y-o-y in May; and (3) June unemployment staying flat at 3.3%.