FW: RHB FIC Rates & FX Market Update - 4/7/14

4 July 2014

Rates & FX Market Update

NFP Data Outperforms Expectations; TLTRO Details from ECB Positive for Peripheral European Carry Trade but Bearish on EUR

Highlights

¨    US NFP rose to 288k while unemployment fell to 6.1%, both lending support to better risk taking overnight; DXY rebounded back above 80 while the UST curve bear steepened up to +6bps. ECB meeting came and went away rather quietly with no major changes; the ECB committee will meet 8 instead of 12 times annually starting 2015. Yesterday's focus was on the modalities of TLTROs which hinted at preparatory plans for ABS purchases, we expect the liquidity to continue support carry trades in the peripheral bonds but presents additional downside risks for the EUR; the EURUSD touched a low of 1.3596 resultantly. ACGB yields and the AUD traded lower overnight after Glenn Stevens stressed that the AUD was overvalued while emphasizing that recent GDP data does not reflect the true pace of economic growth.

¨    Asian bond markets were broadly negative with the exception of RPGBs ahead of expectations for inflation to ease marginally. The CNY steadied yesterday after 3 days of lower PBOC fixing rather than being data sensitive. Else, Indonesian election uncertainty has heightened given the narrowing gap between Jokowi and Prabowo where the latter has executed a strong campaign with better media and funding support; we turn tactically bearish towards Indonesian markets ahead of election results. Back home, the MYR strengthened against the USD supported by offshore demand ahead of the 5y MGS reopening and trade balance data.

¨    AUDUSD broke the 20day SMA on RBA comments for a weaker AUD and a stronger USD, with strong support at 0.9345/8 yesterday. Despite RBA’s recent tolerance towards the AUD’s strength post budget, dovish comments from Stevens reinforced the notion for a significantly weaker AUD “at some point”.