FW: RHB FIC Rates & FX Market Update - 9/10/14

9 October 2014

Rates & FX Market Update

Dovish Fed Minutes; Stop-Loss Orders Triggered on USD Weakness; China Markets Unfazed by Headline Sentiments

Highlights

¨    USD strength beleaguered by dovish FOMC minutes with risks stemming from a stronger USD which could hamper growth and inflation were highlighted. In addition, some participants believed that the considerable time reference in the forward guidance could be misunderstood as a commitment rather than being data-dependent. 10y UST yields (-2bps) were supported by the 10y auction supply which garnered a lackluster response (BTC: 2.52x, lowest since Aug-13) with yields cut-off at 2.381%. The USD sell-off saw a convincingly break above 1.27 for the EURUSD pair but remains capped below 1.275; near term correction in the pair is expected to persist. Elsewhere, ACGBs gained following the unexpected cut in payrolls; AUD faced a choppy session where the weaker USD theme overshadowed the weaker jobs data.

¨    The Chinese markets remained stable with investors unfazed over the moderating expansion in China’s non-manufacturing sector and the ongoing negotiations in Hong Kong; the HSBC services PMI fell to 53.5 in September (Aug: 51.4). Premier Li further emphasized his pledge to employ targeted measures to continue reducing financing costs. Meanwhile, MYR recovered its overnight losses following the declining reserves data, breaking briefly below its 3.24 support level ahead of the Friday’s budget release which should follow on from last year’s fiscal positive messages. We opine that the USD appreciation breather together with the optimistic outlook should likely see the USDMYR pair consolidate at current levels; MGS yield remained firm at 3.881%.

¨    Dovish FOMC minutes offered some respite to the KRW; USDKRW retreated from its 1074, gapping down towards 1065 this morning on USD stop-loss triggers. We expect BoK to maintain status quo next week, contrary to market expectations, given the poor translation to GDP. This further suggest the bearish momentum on KRW to persist where we see a strong resistance at 1050/USD.