FW: RHB FIC Rates & FX Market Update - 20/9/17

 

20 September 2017

 

 

Rates & FX Market Update

 

 

Trump’s UN Speech Did Little to Alleviate Geopolitical Tensions

 

Highlights

 

¨    Global Markets: Subdued movements seen across major markets overnight as investors await the outcome of the September FOMC meeting, amid broad expectations for the Fed to outline its balance sheet reduction strategy. Markets will also keep a keen eye on the dot plot for signals of FOMC’s commitment towards a gradual FFR hike, with the tightening pace not expected to be dampened by balance sheet tapering. We continue to expect relatively contained UST movements over the coming months despite the policy tightening, with low inflationary prospects and political woes to continue weighing on yields; stay neutral USTs. Over in Japan, August trade data came in better than consensus expectations, with exports climbing 18.1% y-o-y (consensus: 14.3%) and imports climbing 15.2% y-o-y (consensus: 11.6%), resulting in a marginally wider trade balance than expected. Movements on the USDJPY pair post-data appeared marginal, where investors await PM Abe’s return from UN and announce his decision on the October snap election. A LDP-Komeito supermajority is expected to be the most JPY-negative outcome over the short run, although missing the 2/3 mark is still unlikely to result in substantial near-term JPY strength; stay neutral JPY.

¨    AxJ Markets: USDKRW climbed 0.41% overnight, the biggest Asian mover under our coverage, as Trump’s UN speech reignited geopolitical tensions as the US President repeated his threat of military actions if North Korea refuses to abandon its nuclear ambitions. We continue to expect the KRW and foreign fund flows to remain sensitive to geopolitical developments along the 38^th Parallel, with a solution unlikely to be within sight over the medium term; we reiterate our mildly bearish bias towards the KRW.

¨    AUDUSD climbed 0.62% overnight above the 0.80 handle, with gains sustained into Asian session today, after RBA minutes revealed that trends seen in the labour market remains positive, with strong employment growth likely to eventually feed through into wage growth and inflation. The bank remains mindful of downside risks stemming from elevated household debt and the strong A$ on consumption and inflation respectively, and reiterates its preference to hold its monetary policy stance to support economic growth and achieving its price mandate. We prefer to hold a neutral AUD stance, with its trade-weighted NEER remaining within medium-term defined ranges, even as the AUDUSD pair hovers around 2-year highs.

 

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