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Markets under-pricing the Fed rate hikes – BNP Paribas

FXStreet (Delhi) – Daniel Katzive, Head of FX Strategy North America, suggests that the while we believe the Fed is unlikely to hike in Q4 and that tightening will likely be delayed until March 2016, rates markets have pushed such pricing even further out.

Key Quotes

“Now, OIS is not fully priced in for a hike until June 2016. Meanwhile, Fed speakers have so far tried to maintain the message that tightening remains possible, or even likely, in Q4. We don’t expect the markets to rebuild pricing for a December Fed hike; but, even without this, we expect US 2-year yields to end 2015 40bp higher from current levels.”

“We have been stopped out of our long USD & GBP, short NOK, AUD & CAD basket recommendation in the aftermath of the jobs data. However, we continue to expect similar strategies to perform well over the course of Q4. We remain long USDCAD and long GBPAUD, consistent with this view.”

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