22 August 2017
Rates & FX Market Update
Geopolitical Tensions to Continue Weighing on Korean Sentiment
Highlights
¨ Global Markets: DM yields declined across the board overnight amid a quiet economic calendar ahead of Jackson Hole later this week. ECB's Draghi will also speak mid-week in Lindau, although we expect no tweaks to the bank's broad monetary strategy at this stage; ECB likely to extend its APP in September but introduce greater flexibility in purchase levels in preparation for an eventual tapering. We reiterate our neutral UST and Bund stance at this juncture, with yields likely to remain range-bound over the coming weeks.
¨ AxJ Markets: The South Korean 20-day trade data affirmed robust trade prospects given stabilising regional dynamics with another double digit export and import growth registered in August, underscoring KRW's strengthening movements yesterday to 1,139/USD (+0.21%). The strength on KRW is however, expected to be short-lived as the commencement of joint US-South Korean military drills are unlikely to alleviate the geopolitical risk in the region, which could limit downward slide on USDKRW over the near to medium term; keep a mildly bearish view on KRW.
¨ Thailand's 2Q GDP growth printed favourably at 3.7% y-o-y, outperforming consensus expectation of 3.2% on the back of strong exports and tourism. While the THB was marginally stronger on data release, BoT emphasized concerns on the pace of THB appreciation YTD vs regional currencies; USDTHB edged marginally higher overnight. While we remain sanguine on Thailand's economic outlook, US Treasury's close scrutiny on Asian currencies is likely to limit BoT's hand on FX intervention on the strong side underscoring our neutral THB stance.
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