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OANDA Asia: ​G20 – a damp squib

News   •   Feb 29, 2016 09:53 SGT

G20 – a damp squib

Following the optimism from trader’s on Friday ahead of the G20 Summit, it looks like a case of the Monday morning blues after the influential group of ministers and bankers failed to come up with any concrete measures to boost growth.

The G20 declared over the weekend that they needed to look beyond ultra-low interest rates and printing money to shake the sluggish global economy into life. However, there were no specific plans announced for a co-ordinated stimulus spending initiative to spark activity, which has led to disappointment among traders.

China back in play

Local indices have opened flat, but uncertainty and pessimism still dominate investors psyche as they take little solace from the weekend G20 Summit. However, the major takeaway from the meeting is that a Yuan devaluation is not imminent. Despite this suggestion, I expect renewed focus on the China economic diary which kicks off on Tuesday with China's official manufacturing and service sector PMIs with the Caixin manufacturing PMI. These data points can prove quite volatile for local markets and very impactful to global risk sentiment.

And as the non-event of the G20 fades into the distance, traders will also be focusing back onto the US economic calendar, and USD interest rate projections.

For the greenback – rate hikes back on table

The USD remains well supported in early trades after Friday’s strong US data which included surprisingly robust US consumer spending coupled with the unexpected upward revision in US 4 Q GDP from 0.4% to 1%. However, US rate hikes are back on the table after the US PCE deflator vaulted to a three-year high straddling the Federal Reserve Board inflation targets and thereby vindicating December’s rate hike. The uptick in inflation suggests the Fed is on course for additional rate hikes this year. And of course on Friday we have the all-important nonfarm payroll data released.

Big week for the Aussie

The Aussie and Kiwi are feeling the brunt of this recent USD move, both falling more than 1% in Friday NY trade. But the Kiwi capitulated another 40 pips this morning after some less than stellar economic data prints which suggest the RBNZ will move to cut rates in the next three to six months. For example, New Zealand January building permits month-on-month came in at -8.2% vs. +2.3%.

It should be a busy week for the Aussie with the RBA rate statement on Tuesday and GDP on Wednesday. While the Cash Rate is widely expected to remain on hold, the accompanying statement will be scrutinized for any hints regarding monetary policy guidance. In the meantime, the Aussie is likely to trade on the back of broader USD moves, at least until tomorrow's Cash Rate data.

Malaysia

The spot USDMYR opened at 4.2100/4.2300 today, slightly higher than Friday Oil continues to be a driver, but the latest US dollar strength is to weigh negatively on commodity and EM currencies so there may be some top side pressure if WTI oil does not regain its composure.

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