FW: RHB FIC Rates & FX Market Update - 27/9/17

 

 

27 September 2017

 

 

Rates & FX Market Update

 

 

Yellen Hinted Rate Hikes Even as 2% Inflation Remains Elusive

 

Highlights

 

¨   Global Markets: USD was buoyed overnight (DXY +0.34%) by Fed Chairperson Yellen's relatively hawkish comments, saying it "would be imprudent to keep monetary policy on hold until inflation reaches 2%", and supportive of Fed's Dudley stance; FFR futures indicate a 2 in 3 chance of a 25bps rate hike in December. Further details of Trump's tax reforms were also leaked, hinting that the lowest tax rate could go up from 10% to 12%, but with increased deductibles. Expect markets to continue keeping a close watch on both fronts, with the latter particularly important to gauge Trump's political capital going into 2018; stay neutral USD.

¨   AxJ Markets: AxJ currencies were broadly lower overnight against the USD, amid the latter's strength and North Korea-linked tensions lingering on; losses were led by the KRW (-0.45%) and the IDR (-0.37%). With both the US and North Korea unlikely to tone down their respective rhetoric over the near term, expect the mild risk aversion mood to persist over the coming weeks. Over in Singapore, August Industrial Production grew 19.1% y-o-y (consensus: 16.0%; Jul: 21.2%), and continues to point towards strong growth in external-oriented industries. USDSGD climbed back above 1.35 on dollar's strength, and we retain our neutral SGD stance over the medium term, although some USDSGD upside may materialise into mid-October.

¨   AUDUSD fell 0.60% overnight amid lingering geopolitical tensions and continued weakness in iron ore sentiment. Iron ore briefly entered a technical bear market amid a 21.1% dip since the August high, although prices rebounded almost USD2/ton overnight ahead of the Chinese golden week. Expect AUD movements to remain volatile with the next RBA meeting within a week from now; speculative and macro flows over the next few trading sessions are likely to position for a hawkish RBA rhetoric.

 

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