FW: RHB FIC Rates & FX Market Update - 6/12/17

 

 

 

 

6 December 2017

 

 

Rates & FX Market Update

 

 

RBA Held Rate as Expected

 

Highlights

 

¨   Global Markets: The US curve continue to flatten, on the way to 50bps (53bps as fo yesterday). Market participants are pricing in rate hikes on short term notes while entrenched low core inflation support longer tenors of the curve. The US Dollar pushed slightly higher as investors took comfort on the tax reform as the House and Senate are expected to begin the reconciliation process in the coming days. We however remain neutral on the Dollar as the tax reform has already been largely priced in and as short term risk on the funding bill persists. The Sterling Pound dropped as a revolt emerged again PM May from her from cabinet. Brexiteers Johson and Gove voiced out concerns that PM May leans towards a soft Brexit following the unresolved contention over the Irish border. Further Tory dissensions are likely to make negotiations harder underscoring our short term GBP bearish view.

¨   AxJ Markets: In the absence of economic release yesterday besides the strong Nikkei Singapore PMI (55.4 in November vs 54.2 in October) as we already reported in our daily publication yesterday, Asian FX markets were relatively quiet and lack directionality. Today, Trade Balance in Malaysia is expected to continue expanding as exports remain strong. The positive economic momentum in the country supports our view of gradual Ringgit appreciation over the coming quarters.

¨   RBA held its cash rate target at 1.50% as expected. The bank maintained its cautious tone still warning about currency strength as a threat to growth and inflation. The AUDUSD has rallied ahead of the meeting on stronger than expected retail sales before softening on RBA's stance despite the bank awaiting a strong print for its third quarter growth (AUDUSD: +0.12% d-o-d). However, the GDP growth print came weaker than expected (2.8% vs 3.0%) and the pair consequently already erased previous gain. We remain neutral on AUD on a rather dovish RBA and unattractive yield differentials.

 

 

 

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