• Dollar pulls back from 20-year high

Global Highlights

Dollar Index – Surprisingly, the greenback dropped 1.05% to 102.72, its twoweek low as it extended its pullback from the recent high. The sudden fall in the dollar was most probably due to a shift in position as most other currencies were battered against the USD and attracted some buyers. There is also the case of mounting worries over “peaking” growth amidst higher interest rates and red-hot inflation which triggered a flight to safety as the UST yields fell. On the data front, the number new claims for unemployment benefits increased to 218K in the week ended 14 May, from a revised 197K in the previous period and above the market estimate of 200K. It is the highest reading since January this year.

US equities and sovereign bonds – Wall Street traded lower when the Dow Jones slid 0.75% to 31,253, S&P500 contracted 0.58% to 3,901, while the tech heavyweight Nasdaq declined 0.26% to 11,389. The UST10Y benchmark yield fell further by 4.7bps to 2.837% while the UST2Y yield dropped 6.2bps to 2.607%, making the yield spread between the two at 22.9bps, higher than previous session’s 21.5bps.

Euro – Taking advantage of the bearish greenback, the euro soared 1.19% to 1.059. The minutes of the ECB's April meeting provided more evidence that a majority of policymakers at the ECB have become increasingly concerned about the inflation outlook. This further raises the likelihood of a steeper rate hike by the ECB during the 2H22.

British pound – Similarly, the pound surged 1.02% to 1.247. The Confederation of British Industry's order book balance rose to 26 in May 2022, up from 14 in the previous month albeit worries on cost pressures and forward-looking sentiment due to Ukraine-Russia war.

Japanese yen – The yen strengthened 0.34% to 127.79, retreating from its 20- year low. Japan called on other G7 countries to reiterate the group’s agreement on exchange rate policy amidst sharp volatility in the currency market, especially for the yen. Japan posted a trade deficit of ¥839.2bil in April 2022, compared with market consensus of a gap of ¥1,159bil. Exports rose only by 12.5% y/y to ¥8,076.2bil, below the market consensus of a 13.8% gain, while imports climbed 28.2% y/y to a fresh record peak of ¥8,915.4bil.

Chinese yuan – The yuan benefitted as well as it appreciated sharply by 0.62% to 6.713. China’s Covid new cases are trending down in general, but the threat of lockdowns lingers as infections are found in key cities while authorities are still committed to the zero-Covid policy. On another note, according to SWIFT, the yuan remained the fifth most active currency despite a drop of the share of global payments currency to 2.14% from 2.20% in March.

Korean won – The won depreciated 0.88% to 1,227. Political noises in the Korean peninsula are mounting as US President Joe Biden plans to visit South Korea next week, while North Korea is expected to conduct nuclear test at the same time, warned Seoul lawmakers.

Australian dollar – The Aussie dollar rebounded as it jumped 1.35% to 0.705. Australia's seasonally adjusted unemployment rate was at 3.9% in April 2022, unchanged from March, as the labour market is seeing a steady recovery in the economy from the pandemic. The labour force participation rate (LFPR) in Australia decreased marginally to 66.3% from 66.4%.

Commodities Highlights

Crude oil – The oil market recouped two days losses following the prospect of easing restrictions in China and the EU ban on Russian oil. The European Commission has announced a €210bil (US$220bil) plan to end its dependency on Russian fossil fuels in a span of five years and speed up its transition to green energy. Brent surged 2.69% to US$112 per barrel while WTI jumped 2.39% to US$112 per barrel.

Gold – Gold was also on the upside as it climbed 1.39% to US$1,841/oz.

Malaysia Highlights

Malaysia ringgit – The local currency depreciated past the 4.40 level by 0.18% to 4.405. The International Monetary Fund (IMF) is expecting Malaysia’s economy to expand by 5.75% in 2022, driven by pent-up domestic demand and continued strong external demand. This is in line with the government's growth projection of between 5.3% and 6.3% for 2022 and near our in-house projection of around 5.6%.

KLSE – The FBM KLCI fell 0.35% to 1,549 amidst starkly reddish major and regional indices. Detailed transactions showed that both local institutions and retailers were net sellers at RM25.9mil and RM5.2mil respectively while being offset by foreign investors’ net buying of RM31.2mil flow.

Fixed Income – The local bond market saw a rally in prices as the 3-year MGS benchmark yield dipped 6.0bps to 3.620%, 5-year -13.0bps to 3.880%, 7-year -4.0bps to 4.370%, and 10-year -5.0bps to 4.410%.

Rates – The IRS yield curve shifted lower as well with the (3Y) -5.0bps to 3.675%, (5Y) -8.5bps to 3.840%, (7Y) -10.5bps to 4.020%, and (10Y) -5.5bps to 4.225%.

Against major currencies – The ringgit had the upper hand against the EUR, AUD, and IDR, but weakened against the GBP, JPY, CNY, SGD, THB, PHP and VND,

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3800 and 4.3850 while our resistance is pinned at 4.4150 and 4.4350

Source: AmInvest Research - 20 May 2022