FX Ringgit 30th July 2010

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hi,

Some ringgit and general currency news for the week ending Friday 30th July 2010 :


July 31, 2010 : Treasury Pulse
Global Foreign Exchange Market
Suddenly, sentiments turned positive for Europe after being ridden by months of crisis following its fiscal woes.

Relief finally came after the European bank stress test results revealed that only seven banks failed while the estimated amount of fresh capital needed totalled 3.5 billion euros, much lower compared with market estimates of between 38 billion and 85 billion euros. Comparable tests carried out in the United States last year found that 10 banks, including Bank of America and Citigroup, needed US$74.6bil of fresh capital. The results, coupled with German business confidence which rose to the highest level since July 2007, precipitated a rally in EUR/USD to an 11-week high, above the 1.3000-level.

It may be prudent to exercise caution on the outcome of the European bank stress test results.

The rally in euro also precipitated a recovery in the British pound with GBP/USD soaring above the 1.5600-level. Outlook on the UK economy improved after its Q2 GDP expanded by a better-than-expected 1.6%, reversing the decline of 0.2% in the previous quarter.

US economic data remained weak with consumer confidence falling to a five-month low in July amid continued weakness in the labour market. Durable Goods Orders in June were weaker-than-expected at -1.0% compared with market expectations of +1.0%, while mortgage applications for the week ending 23 July declined by 4.4%, reversing the previous week’s increase of 7.6%. Grim outlook on the US economy continued to weigh on the greenback, culminating in the US dollar index to decline by 1.2% at press time.

Export growth in Asian region remained resilient despite the recent global headwinds. South Korea’s current account surplus rose 56.1% in Q2, fuelling an expansion in its GDP by a higher-than-expected 7.2%. South Korea joined the chorus of other Asian nations such as Thailand, India and Taiwan which reported strong export figures in June. Resilient Asian fundamentals, coupled with abating concerns on Europe’s debt crisis, prompted gains in Asian currencies during the week.

At the time of writing, the Bloomberg-JP Morgan Asia Dollar Index which tracks 10 actively traded regional currencies rose by 0.4% compared with a week earlier. Increasing foreign direct investment (FDI) into Malaysia also fueled gains in the ringgit near two-week highs at 3.1828 against the US dollar. FDI in Q1 2010 totalled RM5.06bil, almost equaled its total in the whole of 2009.

Fears of a runaway inflation prompted the Reserve Bank of India to raise its key interest rates for the third time this year. The reverse repurchase rate was raised by a higher-than-expected 50bps to 4.5% while the repurchase rate was raised 25bps to 5.75%.

Moving forward, the direction of the foreign exchange market will likely be influenced by a confluence of factors such as economics trend, corporate earnings, flow of funds and market sentiment. Corporate earnings have come in 75%-80% above expectations but the key question is how much further will the upside be, given a tapering growth outlook.

As such, while we remain in favour of Asian currencies, we maintain a cautious stance as any downside surprises in economic data and corporate earnings outlook could reignite global risk aversion leading to higher volatility. For the coming week, we expect USD/MYR to trade within the range of 3.1750-3.2150, with a strong possibility of a re-test of the psychological 3.1800-level.
End of Article
http://biz.thestar.com.my/news/story.asp?file=/2010/7/31/business/6770097&sec=business


July 30, 2010 : FOREX: Ringgit Closes Higher Against US Dollar
KUALA LUMPUR, July 30 (Bernama) -- The ringgit ended higher against the US dollar Friday as investors took the cue from firmer equity markets, dealers said. At 5pm, the ringgit was quoted at 3.1790/1830 to a US dollar compared with Thursday's close of 3.1820/1870.

However, a dealer said investors were taking a cautious stance as they were still unclear of the global economic growth fundamentals. The ringgit declined against the Singapore dollar to 2.3358/3408 from 2.3330/3387 Thursday and eased against the yen to 3.6832/6896 from 3.6521/6572 on Thursday.

It, however, appreciated against the British pound to 4.9666/9741 from 4.9770/9867 Thursday and advanced against the Euro to 4.1476/1538 from 4.1579/1648 previously.
End of Article
BERNAMA
http://www.bernama.com/bernama/v5/newsmarket.php?id=517679


Foreign Exchange

GBP/USD  open 1.5416  close 1.5626
EUR/USD  open 1.2900  close 1.3043
USD/JPY  open 87.48  close 86.29
USD/CHF  open 1.0540  close 1.0390

USD/MYR  open 3.1980  close 3.1820
GBP/MYR  open 4.9300  close 4.9722
EUR/MYR  open 4.1254  close 4.1503
JPY/MYR  open 3.6557  close 3.6876
CHF/MYR  open 3.0342  close 3.0626

extract from Starbizweek 31/07/10


July 31, 2010 : Interest rate hikes starting to help Ringgit
WHEN Bank Negara raised interest rates for the third time this year earlier this month, expectations were that the ringgit would appreciate. That, together with the removal of China’s yen peg to the US dollar, led to suggestions that the ringgit could regain some of the buoyancy in its value against the US dollar that had seen the local currency emerge as one of the best-performing currencies this year.

There was also the school of thought that suggested those domestic interest rate hikes had created a buffer between rates in Malaysia and elsewhere that might see the local currency becoming a carry trade currency. While the ringgit is not yet seen as a carry trade currency, its slow ascendency against the US has been seen after the third rate hike earlier this month.

After interest rates were raised by 25 basis points to 2.75% in the July 8 meeting of the Monetary Policy Committee, the ringgit saw a brief spurt against the dollar but has since see-sawed in a narrow band. But that has changed a wee bit as the ringgit has strengthened to its highest level this year as RM3.18 to the dollar yesterday.

That pattern of trade has somewhat broken away from the initial pattern seen after the yuan ended its peg against the US dollar last month. After a surge, the Chinese currency has traded within a narrow band of between 6.77 and 6.78 to the dollar.

Notwithstanding the slow rise towards the year high for the local currency, the interest rates hikes in recent months, which the central bank says is a move towards normalisation, has led to money entering Malaysia. While higher domestic rates might have been the main factor, another was the fact that selected Asian currencies were the flavour of the month, given the economic malaise in Europe and the sluggishness of the US economy.

In a response from Bank Negara to StarBizWeek, the central bank says portfolio capital flows were influenced by both domestic and external factors. Domestically, the impressive 10.1% GDP growth in the first quarter of the year, talk of a stronger economy and the transformation of Malaysia into a high-income economy have whet the appetite of investors.

The central bank said in the first quarter of 2010, portfolio inflows amounted to US$3.4bil, a healthy gain from the US$1.4bil in the fourth quarter of 2009. “Nevertheless, the pace of portfolio flows in recent months has been relatively modest, given the volatility arising from the European sovereign debt crisis and the lingering concerns over the global economic recovery,” says Bank Negara. “Overall, the flows have been manageable and well-intermediated by the financial system.”

Bank Negara points out that because of the strength and depth of the domestic financial system, inflows are more effectively intermediated without causing undue risk to the economy. It cites the fact that the ringgit bond market is one of the largest in this region, with a size of 94.1% of GDP.

Furthermore, the country’s Islamic bond market is also deeper than other markets, with the highest number of sukuk issuances recorded this year thus far. “At the same time, Bank Negara has developed a robust surveillance system that enables us to monitor capital flows on a near real-time basis and Bank Negara is equipped with a wide range of monetary instruments to sterilise these inflows,” says the central bank. “Bank Negara’s policy is solely to maintain orderly market conditions while at the same time ensure that the ringgit is not misaligned from its fundamentals so that it will not contribute to the build-up of internal and external imbalances.”

Bank Negara adds that interest rate differentials is a determinant of capital flows, but it is not the only one. “Some of the other factors include economic growth prospects, exchange rate expectations, anticipated returns in the equity market and other investments, as well as investor sentiments,” it says. The central bank adds that the overnight policy rate of 2.75% was broadly in line with other regional interest rates and that there are many other countries that have higher official interest rates.

The official borrowing rates of Indonesia, the Philippines, China, India and Australia are 6.5%, 4%, 5.31%, 5.5% and 4.5% respectively.

A recent report by Morgan Stanley suggests that the interest rate hike might also have been used as a tool to attract foreign capital to bolster the country’s foreign exchange reserves, which have not kept pace with the rise seen in the reserves of Malaysia’s neighbours. Foreign exchange reserves saw a drop in the middle of last year and has basically plateaued from the last quarter of 2009. While the hikes would lead to more capital flowing in, which is welcomed, considering the quantum of the fall, the country is comfortable with the level of reserves as data for the middle of June says it is sufficient to finance eight months of retained imports and 4.4 times the short-term external debt.

The interest rates hike, however, is seen to have an influence on the real sector as a means to cap skyrocketing property prices.
“One of the major assets facing some strong pressure has been the property market,” says RAM Holdings group chief economist Dr Yeah Kim Leng. “We needed a tightening to prevent a further build-up in those asset prices.” The effectiveness of a 75-basis-point rise in interest rates might not quell speculation on properties but with the household sector debt now at 76.6% of GDP, higher repayments for debt taken to buy cars, houses and for other consumption needs would bite into private consumption.

Yeah says the rate hike was a move towards a balance between consumption and savings. The rise in household debt to GDP was partly due to the contraction of GDP of 1.7% in 2009 but authorities are confident that the financial asset side of the ledger remained sound as financial assets to debt was 2.44 times. The ratio and growing affluence of households has allowed for increased access to financing and with gross non-performing loan ratio for household remaining low at 2.7% at the end of April 2010, over extension of debt might not be a problem just yet.
End of Article
http://biz.thestar.com.my/news/story.asp?file=/2010/7/31/business/6719922&sec=business