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FX

USD Declines on Trade and Political Tensions

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USD: Selling continues with JPY the key beneficiary                        

  • USD weakness persists with the USD index closing Friday’s session below 89.50 even as Citi analysts term Trump’s Section 101 sanctions on China as “potentially harmful” but not leading to a trade war yet.

     

  • The major beneficiary of USD weakness remains JPY as USDJPY closes Friday’s session decisively below 105.00 (104.73), aided by USD cash selling by under hedged Japanese exporters before Japan fiscal year end and the deepening political scandal in Japan.

 

 

GBP: Holding below 1.44/1.45 as Irish border question remains unresolved

  • Brexit remains the ultimate test for sterling resilience even as last week’s EU Summit goes without a hitch, with the leaders rubber-stamping the transition deal. Concerns remain as highlighted by EU President Tusk on Friday when he essentially kicks the Irish border question down the road, saying EU-UK leaders will assess that question at the June Summit to be held 28-29 June. This potentially creates more event risk for sterling in Q2.

     

 

 

Commodity Bloc: CAD cheers on stronger CPI, AUD sentiment heavy, NZD vulnerable to changes in RBNZ Policy Target Agreement

  • USDCAD declines 70 pips on encouraging Canada CPI data with February headline CPI at 0.6%MoM vs 0.4% expected and YoY rising to 2.2% vs 1.9% consensus – highest since 2014. Details are also encouraging with the average of the 3 core CPI measures inching higher for a fifth month to 2.03%, fastest gain since 2012. CAD though is unable to sustain the gains due to escalating US-China trade concerns and NAFTA uncertainty ahead of the 8th round of negotiations this week.

     

  • Meanwhile, AUD sentiment continues to weaken, dragged initially lower by the USD after the FOMC meeting earlier last week but then extending the move as risk assets continue to underperform. AUD weakness is particularly heavy on crosses (vs. EUR, JPY and CAD).

 

  • NZD awaits the new RBNZ Policy Target Agreement (PTA) on March 26 and Governor Adrian Orr beginning his term on March 27. The 3 areas to watch the new PTA for include: (1) Inflation – for a possible change from a 1 - 3% target range with a 2% midpoint to just a 1-3% range only. While a low probability outcome, the change could send a dovish signal to NZD. (2) Employment - A target of ‘maximizing employment’ may not worry the market much but providing an ‘employment target’ to the RBNZ may make policy more uncertain and upcoming meetings more lively (another potentially NZD negative). (3) Committee Decision - The government wants to introduce a committee decision-making model for monetary policy, including participation of external experts.

 

 

Asia EM: Singapore April MAS tightening likely on higher February CPI, China PMI highlights slowdown in production, new orders

  • Singapore’s February core CPI data Friday comes in above consensus at 1.7% YoY (consensus: 1.6%, Citi: 1.7%, Jan: 1.4%) and points to a 0.5% “slight” slope steepening (60% probability) by MAS at its mid April meeting. But Citi analysts also see the odds of MAS standing pat at a high 40% due to rising US-China trade tensions that could impact Singapore via regional supply chains.

     

  • The week ahead sees the release of China PMIs on Friday, March 30. Manufacturing PMI has been falling since November from 51.8 to 50.3 in February. The decline has been mainly driven by a fall in production and new orders, with seasonal factors playing a key role. However, Citi analysts think a softening of growth momentum has also played a part in the PMI slowdown.

 

 

This is an extract from the Daily Currency Update, dated 26 March 2018. Please approach a Citigold Relationship Manager if you would like more information.

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