FW: RHB FIC Rates & FX Market Update - 12/1/18

 

 

 

12 January 2018

 

 

Rates & FX Market Update

 

 

USD Took a Hit on Hawkish ECB and Poor US Inflation Data

 

 

Highlights

 

¨   Global Markets: Post hawkish ECB minutes (see below Daily FX Write-up), the US Dollar extended its drop on poor inflation data at factory levels as producer prices contracted in December (-0.1% m-o-m and 2.6% y-oy). On the bond market, mid to long term US Treasuries remained supported, following a solid 30-year auction with a bid-to-cover ratio at 2.74, the strongest observed since 2014. The slide in US bond yields also weighed down on the USD. The ongoing trend is expected to continue but we exert some caution as the DXY is nearing the critical 2017 lows (91.35/91.00) area, with all eyes now on today's CPI and retail sales.

¨   AxJ Markets: In Malaysia, industrial production rose in November 5.0% y-o-y vs 3.4% in October, beating expectations (4.6%). Combined with the USD sell-off and Brent briefly testing 70, the USDMYR made a convincing break below 4.00 (daily close at 3.9875). We keep a constructive view on the Ringgit over the short to medium term.

¨   The EURUSD is now testing the 1.2000 psychological level for the third time since 2017, and remains just shy of the top made in September at 1.2092. The European Central Bank stated that it could revisit its forward guidance on future actions early in 2018 as the economy improves. While hawkish expectations mounted over the past months after the bank halved its APP, the formality in the minutes boosted euro bulls' conviction. We eye last September top as a critical breakout level being cognisant of the political uncertainties in Germany and Italy as well as higher growth expectations probably partially priced in by markets. However, Germany slightly missing 2017 GDP growth consensus expectations left the common currency unshaken given the positive momentum.

 

 

 

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