Issue#: 441/2017

Spot values at a glance:







Asian equities declined as investors fretted about the impact of American tariffs on the global economy. Safe haven assets such as the yen and gold gained. China’s National People’s Congress got off to a start, as officials kept its 2018 growth target of 6.5%.


China’s National People’s Congress Commences:

China kept its 2018 growth target of around 6.5%, released earlier today before Premier Li Keqiang’s report to the National People’s Congress gathering in Beijing.

Today’s NPC comes against the backdrop of a looming trade clash with the US. Last week, US President Donald Trump announced that he plans to impose tariffs on steel and aluminum imports. China tried to defuse some of the tension, saying it would host US officials for a new round of dialogue on trade issues. China doesn’t want a trade war, but wouldn’t allow its interests to be harmed, Vice Foreign Minister Zhang Yesui said.


Trade Wars:

The Trump administration shows scant sign of watering down its plan to impose stiff tariffs on steel and aluminum imports with carve-outs for specific countries, despite opposition from U.S. allies and Republican lawmakers. The president’s trade advisers fanned out across television news shows on Sunday to defend the move, saying it was necessary to ensure the survival of the domestic steel and aluminum industries and would be put into effect soon.

In spite of pleas from Canada, Great Britain and other US partners, shipments from US allies will not be excluded from the action, they said. Some exemptions though may be granted to specific products deemed necessary to US businesses. Trump is expected to sign a formal order for the tariffs in the coming week or the following week at the latest, after all legalities are finalized, an official said.

Already-volatile markets swooned after Trump announced the tariffs last week, with the benchmark S&P 500 Index falling more than 1.3% that day. Foreign officials threatened retaliation, including European Commission President Jean-Claude Juncker, who said the bloc would target imports of iconic US merchandise such as Harley-Davidson motorcycles and Levi Strauss jeans.


Merkel Secures Fourth Term:

German Chancellor Angela Merkel has secured a fourth term after the Social Democrats voted to stay in her government, but she will have her work cut out for her. Trump’s threat of tariffs on European cars, China’s global investment push and Emmanuel Macron’s calls for a closer-knit euro area all demand a German response following more than five months of political stalemate in Europe’s biggest economy.


BOJ Governor Hints on QE Exit:

The Bank of Japan will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019, Governor Haruhiko Kuroda said Friday, marking the first time he’s provided any clear guidance on timing for normalizing policy.

“Right now, the members of the policy board and I think that prices will move to reach 2% in around fiscal 2019. So it’s logical that we would be thinking about and debating exit at that time too,” he said. “I’m not saying that the negative rate of 0.1% and the around 0% aim for 10-year bond yields will never change, but it is possible. We will be discussing that at each policy meeting.”

With the Federal Reserve already raising rates and the European Central Bank debating normalization, Kuroda has been under increasing pressure to provide details on when the BOJ may follow suit. While the outlook for prices and the economy have pointed for quite some time of the need to mull an eventual exit, Kuroda’s acknowledgment of this is significant.


RBA Rate Hike Odds Slip:

According to Bloomberg news, just over four weeks ago, traders were pricing in an Australian interest-rate hike, the first since 2010, as a done deal for the fourth quarter. They’ve since backtracked to bet that Governor Philip Lowe will maintain a record-low 1.5% for at least the rest of the year.

Growing doubts about household finances, already straining under record debt and stagnant wages, together with a deflationary retail sector and job numbers still some way off full employment, have tempered expectations. Lowe’s adoption of the word “gradual” to describe the likely pace of unemployment falling and inflation returning to the 2.5% midpoint of the RBA’s target, helped drive the pullback.


FX Updates:


Spot: 1.3194

USDSGD slipped back below 1.3200 Monday, amid USD weakness and as better-than-expected Nikkei PMI data backs the case for the MAS to tighten monetary policy. Nikkei Singapore PMI data climbed to 55.3 last month, from 53.6 in January.

The long-term trend continues to remain to the downside although the pair failed to make a lower low last week, indicating that consolidation between 1.3000 and 1.3340 over the near future is possible.



Spot: 0.7747

AUDUSD continues to languish below its 200-day moving average of 0.7787 after breaking below it last week. The Aussie has been subject to some downside on the back of a global trade war in the making but the slide was thwarted by setbacks in the greenback for the same reason.

Nonetheless, the bias remains to the downside for AUDUSD, with a further leg lower towards 0.7600 a possibility over the medium term.



Spot: 1.2897

USDCAD approached its key resistance of 1.2920 Monday, and looks poised to break above it this week. The Canadian dollar, already beset by concerns over recent slowing economic growth and Nafta negotiations, continues to be weighed down over Trump’s recent announcement that he plans to impose new tariffs over steel and aluminium imports.



Spot: 6.3324

USDCNH slipped slightly but continues to maintain above 6.3000 as China’s NPC kicked off earlier today. The pair has been ranging between 6.2500 and 6.3700 since end-January; the trend is likely to continue over the medium term.



Spot: 105.48

USDJPY’s failure to regain above 108 last month has set a more bearish tone for the near term. The yen advanced Monday toward a 16-month high as the threat of a trade war spurred by Trump boosted the demand of safe haven assets such as the yen. Kuroda’s hawkish comments last Friday also boosted the yen over the weekend.



Spot: 1.3792

GBPUSD rebounded from a 6-week low reached on Friday amid a weaker USD and as Prime Minister May’s speech last week failed to provide any new details on how Brexit negotiations will proceed. Continued uncertainty may drive the currency pair lower towards the next support region of 1.3500-1.3600.


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