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The USD is steady this morning with little fresh impetus from bond or equity markets, and we could face a holding pattern until Wednesday’s US Fed meeting.

With the Fed expected to revise their economic projections, the issue will be whether this will be enough to nudge the median dot for 2023 into signalling a possible rate hike. The FX market will also remain watchful of the bond market’s reaction to the meeting, which may be sensitive to the Fed’s decision to extend the supplementary leverage ratio exemption for Treasuries.

Ringgit firms up

In a policy shift possibly designed to address some FTSE investors concerns, BNM has moved to liberalize the interest rate swap market, which will allow investors to better hedge bond portfolios.

Allowing onshore backs access to this derivative market will add much-needed liquidity in Malaysia Interest Rate Swap market. It will also simultaneously address some lingering foreign investors hedging concerns, as the FTSE Russel gets set to publish its biannual fixed income review on March 29, were Malaysia remain precariously perched on the Watchlist for possible exclusion.

The ringgit traded firmer as investors view the BNM policy move positively regarding Malaysia FTSE watchlist status. Still, overall, FX trading remains subdued ahead of the FOMC this week.

Gold prices rise

Gold continues to move up without much support from yields or US dollar. And focus on FOMC meeting sees the market shift from bearish to slightly bullish, thinking the Fed is very unlikely to blink.

Bullion may have received some support from poor showings by German Chancellor Angela Merkel’s CDU Party in two regional elections over the weekend. The path of COVID-19 in the Eurozone also remains problematic.

After strong hands embraced support at US$1680 level, gold seems to be base building above USD1,700/oz. If it maintains a holding pattern, it could stage for gains in the medium to longer-term as physical demand in India and China seems to be on firmer footing than earlier this year and 2020.

But the view on the horizon, which is attracting gold players back, is the possibility of tax increases due to increased government spending – not just in the US but elsewhere – may support Gold.

Historically, tax increases trigger shifts into bullion and hard assets.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi