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USD Awaits May Jobs Report

30 May 2017Economics
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USD & JPY

Strategy: Mixed data may not deter Fed from June rate hike

US' first quarter GDP growth estimate was revised up from 0.7% to 1.2% but April's core durable goods orders, which excludes aircraft orders, fell more than expected. This may cast some doubt whether US growth is indeed broadening away from consumption.

Citi analysts expect the Fed to hike the rate by 25 basis points in June and then in September. They also expect the Fed to announce in December that they will start shrinking the balance sheet from January 2018.

EURO BLOC

Strategy: Sterling appears oversold, Euro range bound.

The EUR/USD fell overnight to a low of 1.1134 after European Central Bank President Draghi reiterated the need to continue extraordinary monetary support for now. Concerns that the Italian election may be brought forward to as early as September also weighed on the single currency. Citi analysts still see the Italian election taking place in February 2018. For now, the EUR/USD is likely to be capped on the upside between 1.1300 – 15 but supported around 1.0920.

COMMODITY BLOC

Strategy: CAD to outperform other commodity currencies.

CAD: The strong sell-off in oil prices despite the agreement by the 24 producer countries to extend output cuts through the first quarter of 2018 looks misplaced. Citi analysts continue to see upside for oil prices, expecting Brent to trade above US$60/bbl before June. In Citi analysts view, the CAD looks increasingly attractive against the other commodity currencies, particularly the AUD.

AUD: The gap between US and Australian bond yields is approaching multi-year lows. This together with falling iron ore prices is likely to weigh on the AUD. Australian April retail sales reading which will be released this Thursday is the key domestic event to watch this week.

GBP/USD has been unable to break through the 1.3050 resistance after recent polls on the UK election showed that the lead by the Conservatives has narrowed by 10 points. Citi analysts believe that the sharp decline in GBP/USD last Friday potentially provides a buying opportunity against the USD, EUR and AUD.

ASIA EMERGING MARKETS

CNY: Bloomberg reported that the People's Bank of China plans to change the CNY's fixing formula, which will rely less on the closing price. Citi analysts expect more volatility around the fix with this formula and for the CNY to strengthen against the basket.

SGD: The 1.3800 level is likely to prove to be a solid floor on USD/SGD given SGD it is already trading some 40 – 50 pips stronger than the mid band. Citi analysts see the Monetary Authority of Singapore retaining its accommodative stance for the rest of 2017 with the current flat slope viewed as "optimal"

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