The DXY had firmed slightly above 104, but the US dollar’s momentum could be tapering off already. Re-repricing in US short-end rates looks done with less than two 25bps rate cuts priced over the next two FOMC meetings. Markets are also fully appreciating Trump’s presidential chances, given closely matched poll numbers in the key swing states. On the long-end, US 10Y yields have already risen back to pre-Jackson Hole levels at 4.20%, which is remarkable given the start of Fed rate cuts in September, with more to come later.
USD/JPY had rebounded above 151, with the JPY being highly sensitive to the sharp rise in US yields. There is a risk that excessive JPY weakness will lead the BOJ to consider bringing forward its next rate hike, although this will likely await the outcome of Japanese elections on 27 Oct, with PM Ishiba having promised a supplementary budget post elections. The IMF estimates Japan’s nominal neutral rate at about 1.50% and expects the BOJ to gradually raise rates. USD/JPY short-term volatility is high, but there is scope for a retracement below 150 if BOJ is to sharpen its rate guidance, as it had previously noted the stronger impact of exchange rates on inflation. Furthermore, excessive JPY volatility, with USD/JPY having risen by over 10 big figures from 140 in Sep, heighten risks of MOF intervention. Being short USD/JPY at around 152.50 may offer a good risk-reward.
BOT Governor Suthiwartnarueput said today that BOT’s rate cut last week was a “recalibration”, and that the BOT also doesn’t want to see rapid moves in the THB, with recent THB volatility being too high. Indeed, THB had strengthened significantly in Q3 and has supplanted PHP as the most over-valued currency in Asia, based on our DEER valuations. We see scope for USD/THB to trade higher given official concerns over THB, and with Governor Suthiwartnarueput also acknowledging the economic impact of rising export competition from China.
Quote of the Day
“We must let go of the life we have planned, so as to accept the one that is waiting for us.”
Joseph Campbell
October 23 in history
Apple Computer released the iPod in 2001.
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