• Hawkish Fed officials prompt dollar play to resurface

Global Highlights

Dollar Index – The dollar surged 0.64% to 108.17, a level we have not seen since mid-July, supported by stubbornly hawkish remarks by Fed officials. St. Louis Fed president stated that he is considering supporting a third consecutive 75-basis point rate hike in September and that he is not yet prepared to declare that the economy has experienced the worst of the inflation surge.

US equities & sovereign bonds – Wall Street closed lower when the Dow Jones slipped 0.86% to 33,707, S&P 500 eased 1.29% to 4,228, while Nasdaq sank 2.01% to 12,705. The UST10Y benchmark yield climbed 9.0bps to 2.972%, while the UST2Y also increased by 3.6bps to 3.234%, narrowing the inverted differential between the two to 26.2bps.

Euro – The euro lost 0.50% to 1.004. The Euro Area's current account surplus shrank significantly y/y in June from €27.6 billion to €3.2 billion, while the goods surplus decreased to €4.3 billion from €31.4 billion as a result of rising import values as a result of higher energy prices.

British pound – The pound fell 0.85% to 1.183. Retail sales in the UK surprisingly increased m/m by 0.3%, rebounding from decreases in the previous three months and exceeding market expectations of a 0.2% decline. Sales volumes fell compared to the previous year but still 2.3% higher than in February 2020 before the pandemic.

Japanese yen – The yen depreciated 0.79% to 136.97. Japan's annual inflation rate increased to 2.6% in July from 2.4%. Consumer prices have been rising for 11 months in a row, at their quickest rate since April 2014, as a result of rising fuel and food prices brought on by Russia's invasion of Ukraine, as well as a severe decline in the value of the yen.

Chinese yuan – The yuan weakened 0.46% to 6.818. After abruptly reducing two major rates earlier this week, the PBoC is anticipated to lower the nation's benchmark lending rates for corporate and mortgage loans later today in an effort to boost demand and combat signs of a weakening economy.

Korean won – The won declined 0.42% to 1,326. The finance ministry raised the prospect of a third consecutive month of economic slowdown in August amid worries about stagflation. Due to rising commodities and oil prices as well as a rebound in demand following the pandemic, there has been a rapid build-up of inflationary pressure in South Korea.

Australian dollar – The Australian dollar dropped 0.61% to 0.688. The Australian government stated that, to boost consumption of electric cars, it would enact new restrictions aimed at reducing carbon emissions from vehicles. Given that only 2% of cars sold in Australia are electric, compared to 15% in Britain and 17% in Europe, the government is concerned that the nation would end up acting as a clearinghouse for vehicles that can't be sold elsewhere.

Commodities Highlights

Crude oil – WTI crude rose slightly by 0.30% to US$90 per barrel, while Brent crude futures added 0.13% to US$96 per barrel. Investors’ worries over impending rate hikes returned, causing crude to be shaky and volatile over the next couple of weeks.

Gold – The price of gold was down 0.66% to US$1,747/oz due to the hawkish posture of the US central bank, the dollar has reached a one-month high against its main competitors, increasing the price of gold for buyers using other currencies.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.09% to 4.478 and traded within the range of 4.481 and 4.475. Malaysia's trade surplus increased y/y to RM15.5 billion in July from RM13.8 billion. This increase in imports, which came about because of the return to normal economic activity after Covid-19 disruptions, outpaced the market consensus of RM17.7 billion.

KLSE – The FBM KLCI was down 0.80% to 1,507. Detailed transactions showed that the foreign investors were then net buyers with RM45.1mil positions, offset by the local institutions and retailers selling flow of RM43.6mil and RM1.5mil, respectively.

Rates – The IRS yield for the (3Y) was +1.5bps to 3.490%, (5Y) +1.0bps to 3.625%, (7Y) -1.3bps to 3.737%, and (10Y) +3.0bps to 3.910%

Against major currencies – The ringgit was weaker against the IDR and VND, but stronger against the EUR, GBP, AUD, JPY, CNY, SGD, THB, and PHP.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.465 and 4.475 while our resistance is pinned at 4.570 and 4.630.

Source: AmInvest Research - 22 Aug 2022