FW: RHB FIC Rates & FX Market Update - 7/2/18

 

 

7 February 2018

 

 

Rates & FX Market Update

 

 

RBA Largely Stick to its Script in its First 2018 Policy Meeting

 

Highlights

 

¨    Global Markets: The USD erased previous gains and UST dropped as the risk aversion sentiment faded when US stock markets rebounded. Should the dust settles on the equity markets, which has yet to be proven given the ramifications to the volatility market and its derivatives, usual factors at play should come back to the forefront: the stopgap funding bill expires tomorrow and Donald Trump’s commenting that he would “love to have a shutdown” if Democrats do not agree to immigration law changes sparks further uncertainty on the outcome. In the medium term, as December trade deficit widened the most since 2008, it may renewed fears of trade wars as “America First” rhetoric strengthened, while inflation developments, not yet repriced in FX, remain key in the wake of the strong for January wage upside surprise; remain mildly bearish USD. Over in Australia, a weak retail sales print (-0.5% m-o-m; consensus: -0.2%) alongside the lack of hawkish rhetoric post-RBA weighed on the AUD initially. RBA remains confident that inflation will return gradually as the labour market continues to improve, although a stronger AUD will complicate the central bank’s policy goals, largely in line with its previous rhetoric. The AUDUSD ended up c.0.4% higher overnight after dollar slipped during the later session; a neutral AUD stance remains appropriate at this stage.

¨    AxJ Markets: Malaysian foreign reserves edged higher to USD103.7bn as of end-January (Mid-Jan: USD103bn), as investors’ sentiment continues to improve towards the nation. Boost in foreign reserves, a tightening-leaning central bank and lower MYR volatility should guard the currency against any modest retracement in sentiment, although high foreign ownership continues to expose the nation’s to global volatility, especially on any EM-wide retracement; stay neutral MGS at this juncture.

¨    Limited downside on the EURUSD as the pair held above its21-day Moving Average and yesterday’s price action suggest and upside swing, for a retest of 1.25. A grand collation in Germany seems to be a question of hours now yet unlikely to give a strong boost to the EUR while the ECB publishes its economic bulletin tomorrow with markets potentially capitalising on the positive outlook for the Eurozone. The EURSGD pair also held above 1.6300 and a retest of 1.6400/1.6450 appears likely. Against the MYR, the technical picture advocates for a rebound towards 4.9100 and 4.9350. As mentioned yesterday, expectations for an additional OPR hike in the very near term is low unlikely to significantly boost the MYR in the coming days.