Global Forex Market
THE US dollar traded sideways for the week albeit closing marginally higher by 0.02% to 98.272.
The US dollar started the week on a strong note due to safe-haven play following drone attacks in Saudi Arabia. However, the dollar pared gains after Saudi calmed the situation, citing it is manageable and informing other Opec members not to respond with extra output.
Nevertheless, the dollar’s strength re-emerged mid-week due to lack of dovishness in the FOMC meeting despite the Fed slashing its interest rate by 25bps to 1.75%–2%, in line with expectations. The Federal Reserve jumped into financial markets this week for the first time since 2008, injecting a total of Us$203bil as of Thursday into the repo markets in an attempt to ease funding pressure in the money market.
In the commodity space, Brent crude surged 6.9% to Us$64.40/bbl as a result of the coordinated drone attacks on Saudi Aramco’s oil refinery facilities late last week. The attacks caused the crude oil supply to diminish by 50% or 5.7 million barrels of daily production and limiting the country’s spare capacity, a cushion for oil markets in any abrupt outage. The crude oil received additional impetus as geopolitical tensions escalated after Iran Foreign Minister Mohammad Javad Zarif fired back on Thursday, warning that any attack on Iran would lead to an “all-out war.”
The euro weakened by 0.29% to 1.104 largely driven by a stronger dollar but managed to cushion some losses owing to Brexit optimism.
Meanwhile, economic release for the week showed the Eurozone economic condition remaining depressed: (1) ZEW economic sentiment index coming at -22.4 in September vs -43.6 in August (cons: -32.2); (2) August’s headline inflation still muted at 1% y/y, unchanged from July; and (3) core inflation rising 0.9% y/y, the same pace as July’s.
The pound was the outperformer for the week among its G7 peers, gaining 0.2% to 1.253, the highest level since July as ECB’S Juncker said a Brexit deal can be reached.
The pound was also partly supported by Bank of England’s (BOE) decision to stay put on its monetary policy, keeping rates unchanged at 0.75% despite its peers signalling an easing bias.
The Japanese yen was up by 0.06% to 108.0 as Bank of Japan (BOJ) also kept its policy rate unchanged at -0.10%, in contrast to the US Fed and ECB’S easing actions. However, BOJ hinted that it may loosen its monetary policy at its October’s meeting, citing the risk of losing momentum on inflation.
The majority of Asian ex-japan currencies depreciated against the stronger dollar. The South Korean won was the worst performer, seeing its biggest drop by 1.4% at 1,194 despite the equity market recording a net inflow of 1.5% to close at 2,080.4.
The rupiah came second, easing 0.7% to 14,060 even after its central bank cut the policy rate by 25bps for the third time this year. Resultantly, Bank of Indonesia took the policy rate to 5.25%.
The ringgit weakened 0.6% to 4.191. The FBM KLCI lost 0.3% to 1,596.3 while foreigners remained net seller, recording a net outflow of Rm134mil. Rather a quiet week with no major economic events, concern shifted to the environment since haze has started to affect productivity, especially in “brick-and-mortar” businesses.