Global Forex Market
THE US dollar depreciated by 0.71% to 97.607 following a confluence of factors including: (1) global risk-on sentiment following reports that the US and China had reached a tentative agreement for the “first phase” of a trade deal, with China agreeing to buy up to Us$50bil of US agriculture products, to accept more American financial services in their market while the US agreed to suspend new tariffs scheduled for Oct 15.
However, optimism was short-lived as the deal lacked clarity; (2) Brexit optimism; (3) disappointing September retail sales data – a gauge for the health of US consumers – which unexpectedly fell by 0.3% month-on-month (m/m) from a gain of 0.6% m/m in August (cons: 0.3%), marking a first decline since February 2019; and (4) reports from the Fed’s Beige Book suggesting the economy was slightly weaker than in the summer.
Brent crude dropped 0.99% at Us$59.91/bbl at the end of the week, dragged by the lack of details about the first phase of the Us-china trade deal that undercut optimism over trade relations. However, worries of further escalation along the Syrian and Turkish border that could affect output or exports are likely to provide more support for oil prices.
The euro gained 0.75% to 1.113 after the UK and EU claimed a Brexit breakthrough ahead of the EU summit with EU Commission President Jean-claude Juncker saying an outline deal was in place. However, the agreement still needs to be ratified by EU leaders and Britain’s Parliament. Besides, there were speculations that the German government may introduce spending stimulus in a bid to support its economy through an ongoing soft patch.
The pound surged for the second week in a row, up 1.76% to 1.289, the highest level since May following reports that the UK and EU have managed to agree on a new Brexit deal ahead of the EU summit.
Meanwhile, economic release for the week includes: (1) August unemployment rate up at 3.9% from 3.8% in July (cons: 3.8%); (2) Wage growth eased to 3.8% year-on-year (y/y) in August from 3.9% y/y in July (cons: 4.0%); (3) September inflation rate stayed flat at 1.7% y/y and missing expectations of 1.8%; and (4) September retail sales accelerated to 3.1% y/y from 2.6% y/y in August (cons: 3.2%).
Amidst an economy that is devastated with the worst typhoon seen in decades, the yen weakened by 0.34% to 108.7. The drag was partly due to a weaker global risk-on environment. On the data front, the headline inflation eased to 0.2% y/y from 0.3% y/y in August (cons: 0.4%); while industrial production declined by 1.2% m/m from a gain of 1.3% m/m (cons: -1.2%).
The majority of Asian ex-japan currencies appreciated against the weaker dollar owing to defused trade tensions, allowing investors to increase their risk appetite. The Singapore dollar came in as the best performer, strengthening by 0.64% to 1.365 amidst the central bank of Singapore easing its monetary policy in a move to support its slowing economy. Although the yuan gained 0.16% to 7.0777 on better prospects of a trade deal, the gains were limited due to a slew of poor economic release.
The rupee came in as the worst performer, down 0.21% to 71.168 after the International Monetary Fund slashed India’s growth forecast to 6.1% from 7.0% previously.
The ringgit rose 0.17% to 4.180 against the weaker dollar. The gain in ringgit was partially supported by positive sentiments from the tabling of Budget 2020 last week. Meanwhile, the local bourse rose in line with its regional peers, up 1.1% to 1,574 while recording a net foreign inflow of Rm263mil.