Maybank FX Tech Weekly - 4 Apr 2016

Please see our Maybank FX Tech Weekly. Charts can be viewed in the PDF attached.

      The US NFP print was perfect, smack on the average since 2012 – the other ingredient for the exuberance concoction. The main brew was Fed Chair Yellen’s speech last week which dwelled on caution – that the Fed could hold rates at this level for a longer time even if the economy shows some signs of strengthening because the Fed does not want to risk a scenario of backpedaling. The dollar fell in response to her words. However, recent retreats suggest that the bears are losing momentum and we see some short-term bullish divergence and we suspect there could be another squeeze before the USD bears reassert themselves. The Mar FOMC minutes is due but Yellen has already spoken last week and so we doubt there could be fresh cues. Eyes are on her again this Fri on a panel with Greenspan, Bernanke and Volcker.

      This week, there are two central bank meetings – RBA is not expected to move though RBI is. With AUD at 0.76 cents, the central bank may express some discomfort with the exchange rate but we doubt there is much that the bank can do about it. Economic rebalancing is still underway though at a slow pace and signaling a rate cut could boosts AUD bonds even more. With net CFTC positioning near year high, any dovish tones from RBA could be taken as an excuse to sell but dips are likely shallow. In Asia, RBI meets tomorrow and we expect the central bank to lower reverse repo by 50bps as opposed to the consensus of 25bps cut after the government has chosen to stick to fiscal discipline rather than growth.

      This is the week that leads up to MAS MPC which normally happens at mid-Apr (around the 14th). 1Q GDP is slated to be released from 7-14th but we reckon it should be next week rather than this week, along with the MPC statement. The SGDNEER was last seen around 0.07% above the implied mid-point of 1.3538. The top end is estimated at 1.3267 and the floor at 1.3808. With USDSGD caught in the downward sloping trend channel, we see room for two-way movements this week within 1.3280-1.3630. For the USDMYR, we would not catch a falling knife and next support is seen at 3.76.

      The rest of Asia has little on the data docket, including China but the daily RMB fixing will continue to be of focus apart from the FX reserves release for Mar. We continue to observe that PBOC uses the DXY index and the RMB index to guide the RMB index. For now, the 98-level holds as a floor for the RMB index, tested twice in the past month and held. According to our RMB index estimate, the last fixing placed the RMB index at 98.18. With mild bullish divergence shown on the dollar chart, gains in the greenback may not translate into much gains for the USDCNY because CNY needs to retain a certain amount of strength against the basket of trading partners. We estimate range trades for the USDCNY within 6.42-6.53. Other data we watch is dairy auction for the NZD and any developments on the crude front.