Maybank FX Tech Weekly - 13 Mar 2015

Last week’s blockbuster US Feb NFP data (+295kvs. +235k Cons) and the start of ECB QE (9 Mar) sparked off a near 4% rally in the greenback, with DXY soaring to 100 levels (Thu) before some profit taking was seen in USD longs into the week’s close, ahead of key highlight next week - US FOMC meeting (19 Mar). Some question marks on the NFP sectorial growth drivers and the lower than expected hourly earnings growth component suggests that the uncertainty on a broad based sustained US growth recovery remains. All these uncertain issues are likely to see minor ups and downs in the dollar but with the uptrend remaining on track.  We are still aiming for the DXY to move above 100 over the next month or so.        Focus next week is on whether the data-dependent FOMC will signal a rate hike bias or if more patience is needed. Looking at recent Fed speaks and economic data (apart from some distortion due to bad winter last month), they seem to support a mid-year lift-off in rates and that means there is a strong likelihood of Fed potentially removing the word “patient” in the upcoming meeting and taking the press conference to clarify on the tone and manage expectation, leading to possible wild gyration in the USD next week.  Our house view remains intact – with a move more likely delayed in 4Q 2015 rather than earlier which suggests some room for further USD volatility until Sep 2015 or so. We remain constructive of USD strength and continue to buy USD on dips.        Moving to Asia, Bank Indonesia (BI) meets on Tue (17 Mar). We believe BI is likely to keep rates on hold at 7.5%, following a 25 bps cut last month. Key news out of China’s CPPCC/NPC meeting – (1) local government debt replacement program, in an attempt to lower funding cost and aims to remove some of the local government debt concerns that markets have been worrying about and (2) commitment to push through interest rate reform plan by introducing deposit insurance by 1H2015 and removal of deposit rate ceiling thereafter. This is seen as a major positive for China’s economy and the Renminbi in the medium term. The NPC meeting will conclude with Premier Li speaking on Sun. Meanwhile market talks of China Renminbi band widening emerging late Fri evening could see some upside pressure on USD/CNH and USD/AXJs in the near term.