Global forex market
THE US dollar was mixed but mostly weaker, nipped by uncertainty over US fiscal policy.
If Congress does not put together a budget that the US President will sign off on by the end of this month and/or raise the debt limit soon after, the government will run out of funds and be forced to suspend some of its facilities. The consensus has been that there would not be a brinkmanship situation like we witnessed at the beginning of this year, there seems to be little progress and the clock keeps ticking. There is enough concern that rating agency Moody’s has warned that a government shutdown could undermine the United States Aaa credit rating.
Meanwhile, mixed messages on both the economy and comments from couple of Fed officials have clouded the outlook for when the US central bank might shift to a slower pace of stimulus. Markets are still largely at a loss for meaningful direction with the US dollar and most major currencies for now hold within recent confined ranges.
A more dramatic tumble from the yen crosses best serve by a concerted risk aversion move reflected in a selloff of global equities – not just the Dow Jones Industrial Average’s fourday drop to reverse its post-Federal Open Market Committee rally. The US benchmark 10-year note hovered around 2.62%, down sharply from two-year highs above 3% on Sept 6. Data out of the United States was mixed but it all, generally, provided a risk off mentality with new home sales coming in better than expected while durable goods, excluding transport, missed the mark at -0.1% for August. The US Conference Board’s consumer confidence index moderated to 79.7 in September, from a revised 81.8 in August and compared with 81.0 in July respectively.
The euro was firmer in reflection of improvements in German consumer confidence data and the looming government debt ceiling in the United States after an earlier fall to its lowest in a week. German consumer confidence improved a notch more than expected, rising to 7.1 for October, a six-year high, from an upwardly revised 7.0 in September. The pound also got a lift as sentiment soured on the greenback as well as a gauge of UK retail spending topped forecasts and rose at the fastest pace since June 2012. CBI retail sales jumped to 34 in September from 27 in August and the steady signs of recovery in Britain have many investors betting on an early rate hike by the Bank of England (BoE). The benchmark 10-year government bond (Gilt) yields have climbed over the past two months and markets have responded to the BoE’s rejection of quantitative easing and more balanced view of the economy as reason to reverse a stimulus discount.
Into Asian currencies, interest in the capital markets continued to retreat on fading volume. Along with higher US dollar/yuan fixing, monthend demand from corporate and importers, the South-East Asian currencies suffered major losses with the ringgit (MYR), Indonesian rupiah and Singapore dollar led the losses. The one-month non-deliverable forward rose to close 11400 from Monday’s 11,296, while the Jakarta Composite Index dipped below its 50-day moving average of 4442.9. Indonesia is seeking to boost its bilateral swap arrangements with its North Asian partners with plans to sign deals with China and South Korea and expanding its existing agreement with China to help it battle its slumping currency.
The MYR gapped higher from Monday’s 3.1983 and hovered above 3.2100 on increasing concerns on its debt sustainability as the Government seeks additional RM14bil supplementary budget. Fiscal concerns continue to buoy the pairing which is at the verge of filling the gap on Sept 19. On the macro data, the foreign exchange reserves picked up by US$300mil in the first half of September to US$135.1bil as at Sept 13, after retreating by US$3.1bil in mid-August. The amount of excess liquidity mopped up by Bank Negara fell to an estimate of RM267.1bil in mid-September, from RM274.1bil at end-August and compared with RM286.8bil at end-2012.