FW: RHB FIC Rates & FX Market Update - 18/1/18

 

 

18 January 2018

 

 

Rates & FX Market Update

 

 

BI Likely to Stay on Hold in Policy Decision Later Today

 

Highlights

 

¨   Global Markets: UST yields were c.3-5bps higher overnight, after Fed's Kaplan mentioned his expectations for 3 or more FFR hikes this year, alongside TIC data revealing that foreign holdings of Treasury fell in November 2017. Dollar pared back some recent losses overnight after industrial production beat expectations (0.9% m-o-m; consensus: 0.5%), alongside the Fed's Beige Book remaining supportive of further policy tightening. We continue to retain our neutral UST duration stance, eyeing limited upticks in yields over the year. Elsewhere in Europe, Euro Area headline CPI came in as expected at 1.4% y-o-y, while core reading remained at 0.9% y-o-y. EUR fell back into the 1.21 handle overnight, after reaching as high into the 1.23 handle, as ECB officials remarked that the Bank is monitoring FX movements, alongside second-order impact on inflation if the currency appreciates too rapidly. We remain mildly optimistic towards the shared currency, eyeing for the EURUSD pair to eventually hit 1.25.

¨   AxJ Markets: Over in Indonesia, the IDR slipped 0.16% overnight ahead of BI's rate decision due later today, where consensus overwhelmingly called for a status quo decision. USDIDR is now trading at the 13,300 handle, near its 4-month high and a marked improvement from its end-2017 price. We opine that BI will maintain its policy stance later today, with the institute's focus remaining on macroeconomic stability and efficient policy transmission.

¨   JPY fell 0.76% against the USD overnight amid the stronger dollar, alongside investors' dip-buying interest in the USDJPY pair amid greater risk appetite, amid a relatively quiet Japanese economic calendar. We expect the pair to again test the 110 psychological on any sustained dollar selling over the coming days; a neutral JPY stance remains appropriate at this junction.

 

 

 

 

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