The dollar softens as economists cast doubt over three rate hikes next year.

Commodity prices rebounded mildly this morning with the dollar falling from its 14-year high, cushioning the downside of those dollar-sensitive assets. Although the Federal Reserve projected three interest rate hikes in 2017 last Thursday, economists around the world seemed to express a different view.

A recent survey of top economists suggested policy makers will maintain a cautious approach to tightening policy until Trump’s policy package starts to materialise. They forecast only two hikes next year, with the first hike starting from June onwards.

We could learn something from all that’s happened this year. The Fed tends to ‘talk more, do less’, which is reflected in their reluctance to raise rates in 2016. There was only one hike in 2016, contrasting with the market’s expectation of three or more hikes at the beginning of the year. That said, the two major political events – Brexit and the US election – did trigger world-wide panic, which gave the Fed more reason to be cautious.

Investors will also need to strike the right balance between positioning for a major dose of US fiscal stimulus and not getting too committed, given the uncertainty surrounding the policies the new Trump Administration will actually implement.

The US dollar index retraced to 102.6 from last week’s high of 103.5. USD/JPY dropped to the 117.9 area, weighing on Japanese equities from a 12-month high. Immediate support and resistance levels are around 114.5 and 119.4 respectively.

Crude oil prices rebounded to around $52 a barrel, fueling the rally in the energy and oil and gas sectors today. In Singapore, oil and gas names including SembCorp Marine, Keppel Corp, Ezra, Ezion each rebounded mildly.

Singapore Free – Dec 2016

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