Thursday, September 14, 2017

FW: RHB FIC Rates & FX Market Update - 14/9/17

 

 

14 September 2017

 

 

Rates & FX Market Update

 

 

USD Surged Higher on Tax Reform Promises

 

Highlights

 

¨   Global Markets: Investors shrugged off the softer than expected US PPI prints yesterday as President Trump and Speaker Ryan re-ignited investors' zest following their pledge to push forward tax reform plans, with Speaker Ryan stating their goal for tax reform to become law by the end of the year. Yields on USTs continued their upward climb, adding another 1-2bps across the curve yesterday amid the strengthening risk sentiment; keep a neutral duration view on USTs. Similarly, DXY reportedly surged higher by 0.69% overnight to 92.520, with major crosses such as EURUSD and USDJPY retracing back towards their support (1.1830) and resistance (111) respectively. Barring a positive surprise in US CPI print due later today, we expect some profit taking activities on USD later today, as details on US tax reforms remains sketchy, casting doubts on the pace of the executions alongside other campaign promises; maintain a neutral view on USD.

¨   AxJ Markets: Following fresh UN sanctions on North Korea, the relatively quiet response from North Korea helped buoy sentiment within the AxJ region, underscoring resilience on AxJ currencies yesterday. MYR emerged as the strongest FX currency, appreciating by 0.39% against the strengthening USD to 4.1915, where we expect the relatively undervalued currency to continue its strengthening momentum over the medium term, projecting for USDMYR to average 4.15 over 3Q18.

¨   The GBPUSD pair held firmly above the 1.32 handle yesterday, partially underpinned by the better than expected ILO unemployment data released yesterday. Ahead of BoE meeting scheduled later today, we expect BoE to keep its Bank Rate unchanged, but keep a close eye on hints on the Bank's stimulus plans, particularly as global Central Banks around the region begin the process to taper their balance sheets. Additionally, the stronger CPI prints are also likely to be a topic of contention, where we expect a downplay on current climb in CPI as transitory or temporary to further weigh on GBPUSD over the near term, bringing the pair closer to its 1.31 major support level.

 

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