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18 Sep 2015
Indecisive dovish Fed inspires little confidence - SocGen
FXStreet (Delhi) – Research Team at Societe Generale, suggest that the US Fed’s dovish and indecisive stance over the rate hikes has inspired little confidence amongst the market participants.
Key Quotes
“The Fed's decision to leave rates on hold was not a surprise to a market positioned that way but the tone of the statement and the new lowered ‘dot-path' (median sees one hike this year, 4 in 2016, 5 in 2017 and 3 in 2018 for a 3.375% Funds rate peak) have dragged Treasury yields down. That is not dollar-supportive. However, any bounce in risk assets will be short-lived.”
“Once EM-inspired reduction in dollar long positions is over, we look for AUD, NZD and CAD to weaken again, with NZD the most vulnerable. And the biggest winner could still be the yen if the risk mood sours.”
“Falling global foreign exchange reserves since mid-2014 has given rise to concerns that it would tighten global monetary conditions and destabilise global markets. But the economic reasoning behind QT is suspect.”
“The dollar is losing driving power, dislocating correlation within G10. But the Fed will jump back into the driver's seat and restore dollar correlations. The correlation between USD/JPY and AUD/USD is currently low, offering the opportunity to Buy a worst-of USD call/JPY and AUD put with an attractive discount.”
Key Quotes
“The Fed's decision to leave rates on hold was not a surprise to a market positioned that way but the tone of the statement and the new lowered ‘dot-path' (median sees one hike this year, 4 in 2016, 5 in 2017 and 3 in 2018 for a 3.375% Funds rate peak) have dragged Treasury yields down. That is not dollar-supportive. However, any bounce in risk assets will be short-lived.”
“Once EM-inspired reduction in dollar long positions is over, we look for AUD, NZD and CAD to weaken again, with NZD the most vulnerable. And the biggest winner could still be the yen if the risk mood sours.”
“Falling global foreign exchange reserves since mid-2014 has given rise to concerns that it would tighten global monetary conditions and destabilise global markets. But the economic reasoning behind QT is suspect.”
“The dollar is losing driving power, dislocating correlation within G10. But the Fed will jump back into the driver's seat and restore dollar correlations. The correlation between USD/JPY and AUD/USD is currently low, offering the opportunity to Buy a worst-of USD call/JPY and AUD put with an attractive discount.”