Currency outlook - July 2015

Currency outlook - by HSBC Bank 23.7.2015

1. Excluding mega rallies, latest US$ really from 2014 has been bigger than average. More than 25%.
2. QE caused US$ to depreciate. Catching up on lost value. Sudden spike.
3. US diverging from other economies. Hiking interest rate while other countries are cutting
4. US economic data has been disappointing.
5. US inflation is taking well below Fed's target of 2%.
6. HSBC thinks interest rate hike will be in December 2015 and another hike next year.
7. Euro is now in 'autopilot' phase. QE implemented causing drop in currency.
8. US$ will likely remain strong, but further gains should be slow.
9. Economic growth sub-par.
10. RM outlook -

a) suffers from commodity price weakness and high debt levels. Malaysia exports more LNG than cruise oil. Watch movement of LNG;
b) low FX volume and declining current account;
c) machinery and electronics exports increase;
d) cutting subsidies and imposing GST;
e) reserve is lowest in market;
f) foreigners hold 35% of government bond.

11. By Q3, US$ = RM3.7

RMB

1. RMB trade settlement has grown bigger.
2. China's investment overseas will continue.
3. CNY - trades within China. CNH -trades outside China.
4. FX flexibility is a key policy aim.