October 13, 2016

Daily Observations:

The US dollar strengthened broadly against major peers after the minutes of the Fed’s last meeting in September reinforced the case for a rate-hike in 2016. Japan equities rallied at the open on the back of a weakening yen. Crude oil declined back below $50/bbl while gold continues to hover above $1,250/Oz.

US:

  • Minutes of the Fed’s latest meeting in September indicated policy makers are moving towards tightening and showed that officials viewed last month’s decision to hold off a rate hike was a close call. The committee voted 7-3 to leave rates unchanged, although several signalled it would be appropriate to raise rates “relatively soon”.
  • The Fed minutes offered little surprise, and market reaction was muted in New York, investor focus now turns to Yellen’s remarks due tonight.
  • The Bloomberg Dollar Spot Index, which tracks USD strength against 10 major peers, rose 0.2% last night and extended gains further by another 0.2% this morning, rising to its highest level since March.
  • The S&P 500 Index managed to eke out minor gains of 0.1%, despite trading lower for most of the session amid disappointing corporate earnings.
  • The benchmark 10yr yield edged higher, rising by 1bp to 1.77%, following the release of the Fed’s September minutes.
  • US government debt has lost 0.9% so far this month, with benchmark yields rising every trading day except on 7th Oct, putting bonds on pace for their biggest declines since Feb 2015.

China:

  • Exports in yuan terms last month unexpectedly fell 5.6%, missing the 2.5% rise projected and contracting from August’s 5.9% increase. Imports rose 2.2%, lower than the consensus estimate of 5.5% and slower than the 10.8% gain in August.
  • At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late September, reversing 2 years of easing to support home buyers. Goldman Sachs says more tightening is likely to follow if prices continue to rise, while Citigroup Inc estimates shrinking demand may lead sales volume to contract this quarter.

Thailand:

  • The Thai baht tumbled amid concern over the health of the king, which has deteriorated sharply over the past few days and is described as “unstable” by the royal palace. Thai credit-default swaps posted their biggest 2-day gains in a year.

Precious Metals:

  • Spot gold was little changed, despite briefly trading below the $1,250/Oz handle; the precious metal continues to be supported above it.
  • Silver for immediate delivery mirrored gold’s moves, and continues to be buoyed above the $17.50/Oz level.

Oil:

  • Crude oil for November delivery was 0.8% lower at $49.76/bbl this morning, following its 1.2% decline last night. Oil dropped on speculation the OPEC agreement to curb output won’t succeed in reducing supply.
  • OPEC Secretary-General Barkindo said yesterday talks with Russia about production curbs have been “constructive”; the country has been sending mixed signals about its commitment.

 

USDSGD:

  • Spot 1.3856
  • USDSGD gained as much as 0.3% to 1.3867, its highest level since February earlier this year.
  • A Bloomberg analysis report said that the currency pair may test the 1.4000 level if MAS leaves policy unchanged tomorrow. The current appreciation rate of the Singapore dollar’s policy band is 0%.

 

AUDUSD:

  • Spot 0.7527
  • AUDUSD resumed its recent downward trend, making a lower low and declining 0.7% to 0.7524.
  • The currency pair has continuously struggled to get back above the 0.7600 handle, and a decline to 0.7500 looks more likely.

 

USDCAD:

  • Spot 1.3291
  • USDCAD bounced off its 200-day moving average to rise 0.4% to 1.3294, on the back of a strengthening USD and the decline of crude prices back below $50/bbl.
  • The Canadian dollar is poised to continue its weakening trend against the greenback, with 1.3450 as the next potential target.

 

USDCNH:

  • Spot 6.7331
  • The PBOC weakened its fixing for the seventh consecutive day, 0.06% lower at 6.7296.
  • USDCNH has risen in every single session this month, except on 12th Oct. Month-to-date, offshore yuan has weakened 0.9% against the greenback. The 2016 high lies at 6.7618.
  • According to a Bloomberg report, many analysts are now predicting 6.8000 as the next key level to watch and a possible target over the next few months.

 

USDJPY:

  • Spot 104.46
  • USDJPY surged through its 104 resistance level, advancing 1.0% to 104.64 earlier today.
  • The next resistance at 105.50 should be tested soon.
  • Yen’s overnight weakness was also attributed to UK Prime Minister May’s softer Brexit stance, which lessened the demand for the currency as a safe haven asset.

 

GBPUSD:

  • Spot 1.2171
  • The pound was 0.8% weaker against the US dollar earlier today at 1.2160, paring back some of its rebound from yesterday, when Prime Minister May clarified her position in a weekly question session in Parliament by saying officials would “have every opportunity to debate the issue”.
  • The 1.2100 handle is key for the stabilization of the currency pair. A break back below, and the pound could face renewed selling momentum which might take GBPUSD back below 1.2000.

 

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