Any ideas on what might be causing this / how to fix? 
This is a stock character added to a new, empty project. iClone 8.41.

Using the "Edit Motion Layer" panel, I create a couple of keyframes. The first keyframe has the upper arm rotated upwards and the hand rotated upwards.
The second keyframe rotates the hand downwards.
These keyframes are set using LOCAL rotate.

The attached video shows the positions of the two keyframes and the odd hand rotation when scrubbed.

Thank you.