[Jason_Lim]

For a while now, US economic policy makers have been dealing with the challenge of driving a car with a sputtering engine up a hill. They needed to do a lot to keep the car moving forward; or at least stop it from rolling back too quickly...Wednesday's announcement from the FOMC suggests a possible change in the mindset at the US Federal Reserve...consistent with the notion in Washington DC of growing confidence in the "green shoots" of growth developing into a more endogenous and sustainable economy-wide growth process. This change is not without risk....How about the markets' reactions to the FED's policy announcement? Well, it was somewhat confused - and understandably so. The surge in the US stock market suggests that equity markets are taking comfort in the signal from Washington DC that things are indeed getting better. In contrast, the backup in rates in the bond market points to concern that policymakers may not be doing enough to contain borrowing rates in the economy, including the mortgage rates so critical to stabilising the housing market. Overall, all this speaks to the reality that we are on the bumpy jouney to a "new normal."
******************************
The FX strategy view is "improved risk appetite is likely to weigh on the Dollar." (should include…and the JPY)

Consider a short GBP/Long CAD position:
This position reflects the negative view on underlying conditions in the UK. The increasingly dire fiscal situation in the UK looks to have brought the market closer to a tipping point, where rising yields could fail to support GBP as investors anticipate greater funding difficulties ahead. Since Canada's fiscal position is close to top of class, short GBP/CAD trades are an attractive means of targeting the risks posed by credit deterioration. Furthermore rising commodity prices and evolving expectations on BoC policy are providing an ever stronger tailwind for CAD appreciation.

NOK is also in favor:
Norway, too, should benefit from a fiscal cushion provided by the stored oil wealth of the Government Pension Fund. Coupled with the relative strength of the Norwegian economy, this should leave NOK among the best positioned currencies to benefit from a risk rally. Of course, this is as close to a consensus view as there is in largely listless FX markets pointing to vulnerability for position unwinds. However, the recent flush-out of NOK longs that contributed to the temporary dip in NOK/SEK appears to have run its course. With positioning more balanced, we think a leg higher is in store.


The RBNZ but the OCR 50 bps (36 bps was priced in) but was more dovish than anticipated in its statement. The currency remains extremely vulnerable, but in an environment with a rising risk preference, the NZD trades sideways as AUD, CAD, RUB and others rally.