The state of play in global foreign exchange markets in a digital world

The state of play in global foreign exchange markets in a digital world
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The coronavirus pandemic is more likely to leave a legacy of weak or falling prices for goods and services than to trigger higher global inflation — the bigger threat once the pandemic is under control would be lower prices. If anything, the current dilemma for central bankers is that the crisis is raising more questions about policies based on consumer inflation targets, which now look less likely to be achieved, even as asset prices soar.

US Federal Reserve policymakers have a median forecast of inflation edging up to 1.7% by the end of 2022. The European Central Bank this month downgraded its forecast to just 1.3% for the same year. Both would be short of official targets of at or near 2%. In Japan, where the fear is a return to outright deflation, data showed core consumer prices fell for a second straight month in May.

Markets, though, have continued to trade defensively.  Two main drivers currently — the risk of a second wave of the pandemic derailing a V-shaped recovery and inducing the possibility of a U-shaped one ahead and the other being expansionary fiscal and monetary policy — may remain intact for longer than expected. That said, loose policies on both fronts could see increased volatility for asset classes across the board, given default risk, sovereign rating downgrades and the outlook being negative. Though the economic and social damage wrought by the virus is unprecedented, economic fundamentals remain a key factor for the valuation of asset classes in most economies. Asian currencies remain tilted to the soft side but are still within familiar ranges that have priced in the risk of Covid-19 continuing to be a factor that curbs economic activity from reaching its potential.

Foreign exchange (FX) markets are growing less fearful about the outcome of next month’s US presidential election, judging by the fall in longer-dated implied volatility on FX options, the main measure of how much risk is perceived. Currency options investors are increasingly betting that Democratic challenger Joe Biden will conclusively defeat President Donald Trump, given his lead in prediction markets and national polls. This can be seen in the fall of some prices for implied volatility, which measures how much the options market believes spot exchange rates will move over a given period and is distinct from actual or realised volatility. That said, the Japanese yen was a significant benefactor of the rush for safe-haven trades as it trades to lows of 105.00 as markets recalibrate the risk of political play ahead of the Nov 3 presidential election.

In a world of market volatility and increasing trade globalisation, customers who have to make cross-border payments are in need of up-to-date information on economic and market events that dictate foreign currency price movements in order to abide by FX requirements and mitigate adverse FX risks. Given the Nov 3 presidential election risk, derailed growth trajectory, possible U-shaped recovery ahead and the falling prices of goods as inflation targets are missed, it will be prudent for Malaysian small and medium enterprises (SMEs) and companies to use FX hedging tools to mitigate their FX risk.

RHB Live FX @ Reflex enriches customers’ FX journey through effortless online booking of FX transactions in 34 currencies. Furthermore, there is no minimum amount imposed for customers to lock in their preferred FX rates, thus providing greater flexibility to customers in managing their FX risk and cash flow.

What is RHB Live FX @ Reflex?

RHB Live FX @ Reflex is an FX pricing and hedging tool that comprises five (5) main functions, namely Exchange Rate Inquiry, Indicative Forward Swap Points, FX Rate Booking, Contract Rate Inquiry and Booking Status Inquiry. Customers are able to monitor, book and execute all their FX transactions online and at their convenience with the touch of a button.

How does RHB Live FX @ Reflex help companies in managing their FX transaction?

When Malaysian SMEs and companies engage in financial transactions denominated in a currency other than Ringgit, foreign currency movements will affect their cash flows, resulting in a lower or higher expected amount. This FX risk can affect investors and import/export businesses engaged in buying or selling products or services to multiple countries. Likewise, companies are also exposed to FX risk if they have subsidiaries in other countries and the subsidiary’s financial statements are translated to the parent company’s currency. This is also applicable to the repayment of loans in foreign currencies.  

Customers that are exposed to FX risk can implement hedging strategies to mitigate this risk via RHB Live FX @ Reflex as it is a platform for customers to monitor, book and execute FX Spot, Outright and Time Option contracts as described below.

What is RHB Reflex?

RHB Reflex is an online service that combines cash management, trade and payments solutions as an integrated online solution. With Reflex, you do not have to imagine being better than the rest. Get started with Reflex to experience how it is to be better than the rest. It is as easy as that! In Reflex, there are Basic, Premium and Premium Plus Packages. Please refer to here for details.

The benefits of RHB Reflex:

  • Be in total control of your financials with total online access at your leisure
  • Be ahead by making clear and strategic business decisions with your cash flows at your fingertips
  • Reduce cost and effort by letting us handle transaction processes so you can focus more on your business
  • Efficiency in handling your cash inflow and outflow, making every move counts
  • Have peace of mind with our proven security features
  • Payroll with Extra Employee Benefits Programme through [email protected]
  • Increase your business efficiency via the connected ecosystem solution with an Accounting system and HR & Payroll system

Manage your outlets and cashiers, generate QR payment codes, receive real-time QR payment notification, and view QR payment transaction history with DuitNow QR via RHB Reflex Mobile App.

FX Spot contracts Provides flexibility to customers to book a rate and settle the contract for FX transaction within 2 days of the contract booking date. There is no requirement for FXCL facility.
Outright FX Contracts Suitable for customers that need to pay or receive foreign currencies in the future. This contract provides flexibility for customers to choose any good business date within one (1) year of the booking date to settle the contracts. Requires FXCL facility.
Time Option FX Contracts Suitable for customers that are not certain on the future date they are receiving or paying FX. Customers can select a start and end date to specify a period that they expect the conversion of funds to occur. Requires FXCL facility.

Introducing RHB Live FX @ Reflex, the hassle-free FX platform.
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