Friday, March 20, 2015

Maybank FX InSight - DXY: Upward Trajectory Still Intact - 19 Mar 2015



DXY: Upward Trajectory Still Intact




*       Despite, this dovish signalling by the FOMC, we see further dollar moves higher as we approach June and also in the early part of 2H 2015. Furthermore, we have revised our euro forecast lower towards a low of 1.04 in 3Q on the back of the ECB QE and expected interest rate differentials. As a result we are revising higher our dollar index to 99.56 (previous: 96.51) in 2Q, 101.26 (previous: 98.11) in 3Q, 98.00 (previous: 96.00) in 4Q 2015
*       We maintain the view of FFR hike beginning Sep 2015 at the earliest totalling 50-75bps by end-2015 as we believe Fed wants to be sure that growth is entrenched to further tighten the job market that will in turn drive up inflation towards its longer term objective of 2%, hence the cautious and gradual monetary policy normalization.  This suggests the US Fed Funds and LIBOR at end-2015 to be between 0.75% and 1.00% before rising to around 2.50% to 3.00% by end-2016.
*       We remain cautious on the prospects of emerging market and regional currencies on the basis of the dollar debt exposures in the region. Some of the regional markets in particular Indonesia, Philippines, Vietnam, Malaysia and Korea are more susceptible relative to others, on the basis of US$-denominated debt to FX reserves. We would remain cautious on the IDR, PHP and MYR as we proceed into June and 3Q 2015.

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