Maybank FX Asia Weekly - 28 Mar 2016

 

      Most USD/Asians traded higher over the past few sessions, lifted by a firmer USD as one Fed speaker after another reiterated that Apr’s FOMC was ‘live’. Most Asian currencies should remain bias to the upside as market focuses on the US PCE core and NFP. Strong data prints could reinforce the Fed’s case for further tightening, and a build-up in expectations for a rate hike in Apr or Jun, strengthening the USD along the way. While the market is pricing in a 35bps hike, our house view remains for Fed to hike rates twice this year with Jun likely to be when the first 25bp hike will take place.

      Though MAS meeting is about two-and-half weeks away, the USDSGD is poised to climb even higher in the lead up to the Apr meeting. USDSGD 1-month vols has started to climb higher after a brief dip and could go higher as the MAS meeting (sometime in the second week of Apr) edges closer, continuing to provide an opportunity to long USDSGD towards 1.40 levels. Expansionary budget though could temper the USDSGD climb. USDMYR’s downside appears to have stalled, despite firmer oil prices, and up moves toward 4.08 is a possibility. USDJPY could face upside pressures as well, though up moves could be tempered by still long-JPY positioning. Of note is that the death cross (where the 50DMA cuts the 200DMA on the downside, signalling bearishness) has been observed for a couple of currencies, including the USDSGD, USDMYR and USDTHB. Thus, there could be a retracement in the medium term.

      Relatively quiet week ahead with only the RBI (5 Apr) meeting in the next two weeks. We expect a cut by the RBI after the government demonstrated fiscal discipline in latest budget with softer inflation pressure providing the room to do so. Japan’s 1Q Tankan is on tap on 1 Apr, while Singapore’s advance estimates for 1Q2016 GDP is expected sometime 7-14 Apr.