FW: RHB FIC Rates & FX Market Update - 7/3/18

 

 

7 March 2018

 

 

Rates & FX Market Update

 

 

RBA Status Quo as Economic Data Remains Mildly Disappointing

 

Highlights

 

¨   Global Markets: The US Dollar plunged (-0.45% d-o-d) after President Trump’s top economic adviser Gary Cohn resigned as the White House is preparing to impose steep foreign metals tariffs that he strongly opposed. Cohn’s resignation (i) weakens the moderate Republican side against the nationalists and economic populists in the West Wing, and (ii) brings further uncertainties on Trump’s economic agenda. Further USD weakness would be expected if the US administration proceeds with the tariffs, which could be even more exacerbated should the White House also implements curbs on some Chinese investments and imports. On the economic front, US Factory orders dropped as expected in January to -1.4% vs. +1.7% a month before. On the other side of the Atlantic, the EURUSD clearly broke above 1.2350 opening the way for a retest of the range top at 1.2500/1.2530. EU retail PMI climbed to 52.3 in February vs. 50.8 in January. Lastly, despite the political stalemate in Italy, peripheral debt advanced confirming that it is not a source of concern, in the short term horizon at least.

¨   AxJ Markets: Asian currencies broadly gained against the USD overnight, with the exception of Indonesia, where foreign investors continue to wind down IndoGB position (as of March 5). Asian FXs are steady against the dollar this morning as investors continue to assess the implications of a trade war on Asian emerging economies. Investors also await BNM’s OPR decision and statement due later today, with the bank unlikely to alter its headline rate at this juncture, instead preferring to await further economic data before deciding on the degree of accommodation; stay neutral MGS.

¨   AUDUSD climbed c.0.8% overnight after Cohn’s resignation triggered USD weakness, with RBA’s decision largely a non-event as the bank stick to its previous rhetoric. 4Q17 GDP due this morning came in at 2.4% y-o-y (consensus: 2.5%), weighed by exports and construction, even as household discretionary consumption rebounded. AUDUSD dipped marginally this morning, and we continue to hold a neutral view towards the Aussie, as RBA remains reluctant to hike rates yet speculators appear unwillingly to pare AUD longs at this juncture.