FX Pulse

The U.S. dollar fell broadly on Monday after markets lowered their expectations for future Fed rate hikes after a disappointing streak of U.S economic data. Odds for the next 25bp rate hike by June fell to 50%, lowest since 29-March after empire manufacturing (5.2 vs 15.0 est) and NAHB housing index (70 vs 68 est) both missed expectations.

    The greenback did recover from its worst intraday levels after Treasury Secretary Mnuchin told FT the “strength of the dollar is a good thing” over the longer term. USD/JPY was the key mover in G10 on Monday - touched a fresh 5-month low of 108.13 earlier in Asia before reversing sharply in NY afternoon to close up at 108.91, back above the critical 200- DMA.

    Mr Mnuchin also said that the tax reform, originally slated to be passed by August is probably delayed (again) due to the set-back in the healthcare reform. Given that market expectations of the Trump administration delivering its key election promises have been significantly watered down recently, it is of no surprise the headline had little market impact.

    China delivered a strong set of economic data on Monday (detailed report here). First quarter growth figures came in stronger than expected at 6.9%y/y (vs 6.8% est). March prints of retail sales and industrial production also outperformed expectations. The robust growth momentum in 1Q17 is likely to spur PBOC to stay vigilante in its policy stance, hiking the reverse repos and lending facilities rates in the months ahead in steps of 10bps in order to rein in over-leverage. With

    the latest US Treasury’s FX report not naming China as a currency manipulator, it opens up the potential of more flexibility for the RMB and could mean further room for strengthening of the currency as both sides assess their bilateral trade relations in the 100-day plan.

    Today, we will also close our short SGD/IDR NDF at 9,820 for a profit of 2.09%. Originally initiated last December at 10,030 as a relative-value carry trade, the spot has been inching higher (against our position) since the beginning of this year and has threatened to break above the 200-DMA on multiple occasions. With the balance of risks gradually favoring upside, we decide to exit the position.