1 August 2017
Rates & FX Market Update
EURUSD Soared to 1.18, on Route to Test 1.20 amid Heavy Data Week
¨ Global Markets: AUD’s rise above 80 cents was largely attributed to the moderating strength on USD, with RBA’s neutral inclination doing little to downplay investors’ speculations for the Bank to begin monetary policy normalisation over the medium term. We caution against chasing the rally on AUDUSD at this juncture, as the recent strength on AUD could prompt RBA’s MPC to vocalise their concerns of stronger AUD on CPI, bringing the currency back below the 0.80 handle; keep a neutral view on AUD.
¨ AxJ Markets: The contraction in South Korea’s Manufacturing PMI was overshadowed by another strong double digit climb in exports (Jul: 19.5%; Jun: 13.6%), spurring further gains on KRW this morning to 1,117 on the back of another overwhelming trade surplus of USD10.6bn registered in July (Jun: USD10.8bn). While CPI crept higher to 2.2% y-o-y (Jun: 1.9%), weak domestic oriented inflationary pressures coupled with elevated unemployment rates are likely to keep BoK on hold through early 2018, anchoring yields on short dated KTBs; maintain neutral duration view on KTBs. Meanwhile, strong trade and current account surplus in Thailand continue to bolster strength on THB; stability on THB continue to boost the allure of ThaiGBs where BoT’s neutral monetary policy stance ahead of 4Q18 Elections are likely to continue favouring ThaiGBs, keeping the 2y ThaiGB yields subdued at 1.41%.
¨ EURUSD surged past the 1.18 barrier yesterday, reaching fresh 30-month high of 1.1836 (+0.71%) fuelled by the supportive EU core CPI print and German retail sales. Additionally, while FOMC rhetoric suggests for balance sheet normalisation and another FFR hike due this year, investors remained unconvinced following the spate of lacklustre economic data signalling a moderating pace of growth, further compounding on downward pressure on USD over the near term. Volatility on the EURUSD pair to persist this week amid the heavy economic calendar, with the EURUSD pair likely to continue its upward momentum, testing its new resistance at 1.20, on the back of the bloc’s strengthening 2Q GDP and sustained PMI expansions.
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