Temporary Reprieve For Risk Assets
ING Economic and Financial Analysis | Jul 04, 2018 04:00AM ET
The July 4th holiday in the US should deliver only a brief reprieve for risk assetsh3 USD: The July 4th holiday offers respite/h3
Risk assets may receive a temporary reprieve and the dollar could correct slightly weaker today as the US enjoys its Independence Day holiday. Far more interest in (and intervention against) a weaker renminbi from Chinese authorities has slowed the USD/Asia advance and should slow dollar demand across the board. Optimists can also find some solace in an team in Bucharest expects the National Bank of Romania to keep rates on hold at 2.50% today, with just a 30% chance of a rate hike. The preference will be to gauge the impact of the 200 basis points of hikes seen over the last 12 months, before potentially taking rates higher again in 2019 (we see a peak in the policy rate at 3.25% in 3Q19). Tighter liquidity also means implied yields on the Romanian leu (RON) are rising again (3-month now nearly 4%). Additionally, the RON is likely to be under less position-adjustment selling pressure compared to the heavily backed Czech koruna and Polish zloty. In all, we think the NBR can continue to keep EUR/RON in 4.60-4.70 range.
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