Asia open: Trump undermined a broad dollar rally – TDS

Analysts at TD Securities offered their outlook for Asia and beyond while wrapping up the key events from overnight and which remain in focus.  

Key Quotes:

“President Trump undermined a broad dollar rally when he commented on Fed policy in an afternoon interview, stating he was “not happy” with continued rate hikes, spurring questions on central bank independence.

Treasuries saw a muted reaction to Trump, with a 2-3 bps rally across the curve while Canadian rates underperformed in the front-end.

The USD proved more sensitive to the President’s comments, with JPY (+0.4%) rallying 0.7% immediately after the headlines before unwinding some of the move. USD/CAD (+0.7%) ground higher over the session, leaving the pair at a three-week high while Cable (-0.4%) traded below 1.30 for the first time since 2017 before recovering.

Brexit developments and top-tier Canadian data are the main market risks for Friday.

What we’re  watching in markets

“We’ve reached our year-end USD/CNY target early, and have thus revised our view for further CNY weakness.

“We continue to see the CNY REER as the operative lever through which China can ease monetary conditions against domestic deceleration, in the presence of low/stable inflation, an unwillingness to ease rates, and regulatory tightening. We now target 7.10 in USDCNY by year-end.”

“FX markets were rattled by Trump’s comments that he prefers a weaker USD and lower interest rate policy. That said, substitutes to the USD are not as attractive at this time given that it still holds a considerable carry advantage. As such, the moves in EUR & JPY are likely to be short-lived. We remain bearish on the dollar bloc currencies given the fractured trade backdrop and weakness in Asia FX. Firm data in Canada leave us inclined to buy USD/CAD dips near 1.3225.”