In view of the next FOMC meeting on March 14-15, the market
has fully priced in a 25bps rate hike on the back of a stronger job market and
accelerating inflation. We concur with the market’s view for a rate hike with a
95% chance. The current pullback may continue post-FOMC meeting. We believe
much of the good news has already been priced into the USD at current levels.
Yields are high and spreads are wide to keep the USD broadly supported against
its major currency peers for the moment. Besides, the focus is on the message
that the Fed delivers. In December 2016, the Fed looked at 3 rate hikes to
which we have placed a 70% chance while our 2-rate hike probability is 90%.
Besides, room for 4-rate hike is at a 45% chance as we take the view that a
March hike will provide more flexibility for potential rate hike cycle for the
rest of 2017 up to four times.
Looking at the DXY, there is room for a slight strengthening
should the tone of the meeting be hawkish. The DXY index could gain to close at
102 based on our fundamental analysis. It could mean that gold should weaken a
bit more from the current level of US$1,198/oz to about US$1,181/oz. However,
the upside of DXY may not last long, possibly reaching a low of 99.9 if
uncertainty gets louder especially from Europe. During this period, we believe
gold will come back to the radar with an upside of US$1,250. In the case of
ringgit against the USD, we expect the local currency to weaken to as low as
4.45- 4.47 from a rate hike on an immediate note, while the upside is around
4.437. Against the euro, we expect the downside for ringgit to be around 4.74
on an immediate note while the upside is around 4.65-4.68.
Also in the meantime, uncertainties especially the outcome
of the Netherlands’ election will have some impact on the USD, and in return
will provide some trading opportunities for gold. Once the Fed has raised
rates, the reality would have set in and the focus will be on the uncertainty
in euro. Should we price in a rate hike plus the uncertainty, our estimate on
the ringgit against the dollar is around 4.41 to 4.43 from current level of
4.45. As for the ringgit against euro, we think the ringgit will strengthen
from the current level of 4.73 to around 4.57-4.60.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.