FW: RHB FIC Rates & FX Market Update - 8/11/17

 

 

 

8 November 2017

 

 

Rates & FX Market Update

 

 

RBA Not Expected to Normalise Policies Over the Coming Months

 

Highlights

 

¨   Global Markets: The US curve flattened for an eighth consecutive day as market participants focused on emerging criticism from the Republican party on the tax reforms as the markup of the proposed legislation continues;  the 2/10 UST spread closed at 68.6bps, levels not seen since 2007. Amid the light economic calendar (Jobs opening rose modestly in September), the Dollar consequently pared earlier gains which were spurred by the pause in the oil rally weakening commodity currencies, yet the DXY still closed in positive territory (+0.18%); remain neutral USD and UST stance. Over in Australia, RBA held its benchmark cash rate at 1.50% as expected, while their assessments of domestic conditions remain upbeat amid improvements in non-mining business investments and public infrastructure spending, alongside strength seen in the labour market. Still, the bank remains concerned over weak household spending, tepid wage growth, and cautioned against further AUD appreciation that may weigh on inflation and economic outlook. We remain steadfast in our neutral AUD stance over the coming months, with any bouts of FX appreciation likely to further derail RBA's willingness to normalise monetary condition.

¨   AxJ Markets: Malaysia's foreign reserves climbed another USD0.1bn over the 2^nd half of October to USD101.5bn (mid-Oct: 101.4bn). We eye stabilisation in foreign reserve levels over the coming months, as the worst of non-resident selling of MYR assets should be largely over, barring a tail event in global markets. Expect the MYR to remain supported against the USD over the remainder of 2017; we continue to expect USDMYR to average 4.22 over 4Q17.

¨   As expected, the EURUD is mainly taking cues from US developments this week. Against the backdrop of a stronger USD yesterday, the pair declined by -0.20% but held above our short term support at 1.1555. Mario Draghi's speech offered no insight on monetary policy as he tried to defuse a conflict with Italian and European authorities over a plan to reduce bad loans while highlighting that there are little evidence that NIRP are hurting European banks' profitability. We remain neutral EUR at this juncture.

 

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