FW: RHB FIC Rates & FX Market Update - 25/1/18

 

 

 

25 January 2018

 

 

Rates & FX Market Update

 

Dollar Sell-off Persisted; BNM Reconvenes Today

 

Highlights

 

¨   Global Markets: The US Dollar collapsed further after US Treasury Secretary Mnuchin said that a weaker USD is good for US trade while Commerce Secretary Ross mentioned that additional tariffs are on the way strengthening the comeback of "America First" policies. The DXY breached below 90 while 10y UST climbed back at the 2.65% handle where we still see value for tactical positioning. We remain mildly bearish USD and keep a neutral UST view. 87.20 appears to be the next support for DXY although a direct drop in the short term horizon depends on ECB's rhetoric, as the central bank reconvenes today with monetary policy expected to remain unchanged. However Mario Draghi's comments will be key as the EUR appreciated by c3.3% since the beginning of the year against the USD on a combination of renewed tightening expectations amid an improving economic outlook (January EU Composite PMI rose to 58.6), and a weaker USD. There is a possibility that ECB's President sounds excessively dovish to contain the EUR's appreciation with a short term pause in the current rally likely as the pair is now close to our 1.2500 target, although a strong shift in policy expectations is unlikely if the economy remains on a strong footing.

¨   AxJ Markets: Over in Thailand, gains in the THB persisted after BoT governor Veerathai offered a less aggressive stance against the strengthening currency, in contrast to previous bouts of rapid FX advances. Still, sustained hot money inflows will likely trigger counter responses from the central bank, and investors can expect slower gains in the THB over the coming weeks; a neutral THB stance remains appropriate at this stage.

¨   MYR gained 0.34% against the USD overnight amid continued dollar weakness and rising oil prices ahead of BNM's first OPR decision in 2018 due later today. December CPI surged 3.5% y-o-y, in line with consensus estimates and supportive of an eventual rate hike. While the Central Bank might act today, we believe that a hike would probably happen later in 1H18 given the current strengthening Ringgit trend. Expectations for a hike today are fairly balanced hence a delayed decision could offer some tactical long MYR opportunities should the pair retraced towards its first resistance at 3.9400 before resuming a move towards our defined 3.87 support level as the momentum remains positive over the medium term; remain mildly bullish towards the Ringgit.

 

 

 

 

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.