Global Forex Market

THE US dollar depreciated by 0.78% to 95.0 largely due to: (1) spill-over effect from a correction in Dow Jones, down 3.15% to close at 25,599 due to fears on faster rate hike and concerns on an economic slowdown; (2) weaker September non-farm payrolls which came in at 134K (previous: 270K; cons: 185K); and (3) softer-than-expected September inflation at 2.3% y-o-y as compared with 2.7% y-o-y in August (cons: 2.4% y-oy).

The dollar’s strength was partly dented after President Donald Trump berated Fed’s rate hike cycle as “crazy”, “loco” and “going wild”, and also blaming the market correction on the Fed’s tightening monetary policy.

In the commodity space, Brent crude price lost 4.35% to close at US$80.39/barrel due to expectation mismatch over the inventory level build-up reported by the Energy Information Administration and growing concerns of the weakening market sentiment.

Supply constraints underpinned by falling Iran exports and hurricane outage pushed the oil price over US$85 level before it lost steam. Besides, spill-over effect from a corrections in major global stock indices have dragged the crude price from its peak. Furthermore, the Organisation of the Petroleum Exporting Countries (Opec) lowered its 2019 global outlook while raising the forecast of global supply including non-Opec countries like the US.

The monthly Opec report also showed that Saudi Arabia increased its production of 108,000 barrels per day (bpd) to 10.5 million bpd. The cartel pumped 32.8 million bpd in September, up 132,000 bpd from August.

Optimism between the EU and UK lifted the euro to 1.160 from 1.152 against the softening US dollar but the gain was capped by the Italian growing deficit. Italian budget continued to dominate the theme as EU commission ready to reject Rome’s budget submission. The tug of war between the EU commission and the government of the third largest economy in Europe prolonged as Luigi Di Maio from the Italian coalition said it will not back down from its plan to increase welfare and pension spending.

The pound appreciated largely by 1.07% to 1.323 after multiple positive Brexit headlines emerged. It was reported that a Brexit agreement can be reached as early as next Monday, resulting in improved sentiment. Furthermore, the August industrial production came in at 1.3% y-o-y from July’s 1.0% y-o-y, beating the expectation of 1.0% y-o-y.

Over the week, the yen rose 0.94% to 112.2 against the weaker dollar as demand for safe haven assets returned. This week’s data release includes: (1) August machinery orders which slowed to 12.6% y-o-y from the previous 13.9% (consensus: 1.6% y-o-y); (2) September machine tool orders which came in at 2.8% y-o-y from August’s 5.1% y-o-y; (3) September PPI maintained at 3.0% y-o-y (consensus: 2.9% y-o-y).

All Asian ex-Japan currencies’ performances against the greenback were mixed.

The baht emerged as the best performing currency, recording a gain of 0.65% to close at 32.721 followed by the Singapore dollar which managed to appreciate by 0.52% to 1.3764. On the other hand, the South Korean won was the worst performing currency, falling 1.05% to 1144.31.

It is also noteworthy that the yuan was able to claw back last week’s losses by 0.59% to close at 6.8899 following the People’s Bank of China’s decision to cut reserve requirement ratio by 100 bps from the current 15.5% for large instituitions and 13.5% for smaller banks which injected 750 billion yuan into the banking system and we later saw the overnight offshore yuan cost of borrowing rising above 5%, signalling liquidity squeeze.

The ringgit fell 0.08% to 4.159 against the dollar during the week. The local bourse was affected by the global equities rout, closing 3.79% lower at 1,708.49, and recording a net foreign fund outflow of RM877.72mil. August’s industrial production slowed from the previous 2.6% y-o-y to 2.2% y-o-y (consensus: 2.0% y-o-y).