FX HIGHLIGHTS

Global: The dollar depreciated by 0.40% to 97.607 as a result of global risk-on sentiment following the positive developments on Brexit. It was also dragged by poor economic data i.e. September industrial production which fell more than expected by 0.4% m/m from + 0.8% m/m in August (cons: -0.1%) alongside with the Philadelphia Fed manufacturing index that slipped to 5.6 in October from 12.0 in September (cons: 8.0). Both the Dow and S&P500 rose 0.28% to 27,026 and 0.09% to 2,998, respectively. The UST10-year added 1.23bps to 1.752% while gold gained 0.12% to US$1,491.87/oz. The pound rose 0.46% to 1.289 following reports that the UK and EU have managed to agree to a new Brexit deal ahead of the EU summit. Also, the euro appreciated by 0.48% to 1.113. Meanwhile, both the Japanese yen and Chinese yuan strengthened by 0.09% to 108.7 and 0.22% to 7.078, respectively as a result of a weaker dollar. In the commodities market, both prices of Brent and WTI rose. Brent closed higher by 0.82% to US$59.91/bbl while WTI surged 1.07% to US$53.93/bbl. This is despite EIA crude inventories for week ending 11 Oct posting larger-than-expected supplies by 9.3mil barrel (cons: 2.9mil barrel). Also, optimism over prospects for a US-China trade deal despite signs of a truce last week has evaporated. The USChina trade dispute continues to cast a shadow on the global economy.

Malaysia: The MYR rose 0.36% to 4.180 against the dollar. The KLCI fell slightly by 0.03% to 1,574.5. The MGS market saw mixed trade during the day with the 5- and 10-year yields adding 1.5bps to 3.245% and 1bps to 3.425%, respectively while the 7-year yield eased 2.5bps to 3.360%. The 3-year remained unchanged at 3.120%. Against the major currencies, the MYR rose 0.26% to 3.846 vs. the JPY and 0.14% to 1.693 vs. the CNY while it fell 0.24% to 4.641 vs. the EUR and 0.20% to 5.356 vs. the GBP. Regionally, the MYR appreciated mostly; (THB) 0.18% at 7.253, (IDR) 0.24% to 3,386.8 and (VND) 0.38% to 5,552.1. However, the ringgit weakened; (SGD) 0.19% at 3.062 and (PHP) 0.06% to 12.29.

MYR Outlook: While we can draw some optimism from the Brexit draft agreement, what seems to have complicated matters was the Northern Irish government allies who cited they could not back the tentative Brexit deal because of the way it handled the Irish border. Nonetheless, after reports suggesting the UK was nearing a deal to leave the EU, it has somewhat reduced geopolitical risk further after at least a truce in the USChina trade war last Friday. However, we saw renewed signs of weakness in export-dependent Germany. The German ZEW economic sentiment index fell to a negative 22.8 points in October from negative 22.5 points in September. Also, IMF is projecting a slower 2019 global GDP at 3% which is lower than ours at 3.2% and is the slowest pace since the 2008 financial crisis. Besides, though the 3Q results from some US companies were upbeat, it is too early in the 3Q earnings reporting period to be overly optimistic. And the US St. Louis Fed President, one of the most dovish members at the Fed, made the case for further interest rate cuts to protect against downside risks though citing the central bank will remain cautious in making more rate cuts. We reiterate a October rate cut by the Fed while being less optimistic for a rate cut by BNM during the 5 November MPC meeting. Underpinned by the ongoing noises, we foresee volatility to remain. On that note, we expect the MYR to trade between our support levels of 4.1618 and 4.1719 while our resistance is pegged at 4.2029 and 4.2125.

Source: AmInvest Research - 18 Oct 2019