USD had a very volatile trading session yesterday. According to FXSTEET, the USD came under selling pressure "after Fed “Dot Chart” revealed the policymakers now expect only 2 rates hikes by the year end as opposed to expectation of four rate hikes in December. Furthermore, the Fed also revised 2016 GDP forecasts lower". USD index dropped sharply to 95.93 (see Chart 1 below).
Chart 1: USD Index's daily chart as at Mar 16, 2016 (Source: Stockchart.com)
As a result, USD-MYR broke below 4.10 overnight. Again we are facing the prospect of a continuing decline in USD-MYR or plain English, strengthening of MYR.
Chart 2: USD-MYR's daily chart as at Mar 17, 2016_8.45am (Source: Investing.com)
I have appended below the charts of USD Index next to USD-MYR. We can see the following:
- USD-MYR tracked USD Index closely up to May 2015
- From May 2015 to September 2015, MYR weakened while USD was moving sideways; resulted in a rising USD-MYR
- In October-November 2015, USD-MYR failed to make a new high despite sharp rise in USD Index
- From then on, USD-MYR again tracks USD Index fairly closely
Chart 3: USD Index & USD-MYR's daily chart as at Mar 17, 2016 (Source: Stockchart.com & Investing.com)
In conclusion, I believe that we should underweight stocks that had benefited from a weaker MYR (or stronger USD-MYR) such as exporters. Instead we should overweight stocks that would benefit from a stronger MYR (or a weaker USD-MYR).
http://nexttrade.blogspot.my/2016/03/usd-myr-struggling-to-hold-onto-its.html
