RHB FIC Rates & FX Market Update - 24/02/15

24 February 2015

Rates & FX Market Update

Central Bankers Testimonies in Focus Today; Resurfacing Concerns Over 1MDB Debt to Weigh on Quiet MGS Market

Highlights

¨   Greece delayed the release of reform details for its bailout extension; the EUR declined 0.52% while long dated P.EGBs traded firmer, buoyed by Greece’s bailout extension, outweighing disappointing IFO surveys. Still, we expect upside gains on EUR to be limited upon Greek bailout plans conclusion, given the divergent monetary policies between EU and US which should continue to drive the EURUSD pair weaker. The USD is likely to remain choppy this week as investors anticipate Yellen’s testimony to the congress which is expected to be better balanced versus FOMC minutes; UST yields to remain subdued on continued weak risk sentiment.

¨   Singapore’s FY15’s Budget highlighted a second year of projected fiscal deficit of SGD6.7bn, largely incurred from front funded expenditures where if excluded would result in a relatively balanced budget. However, deficit funding would stem from higher revenue collections rather than debt issuance or draw on past reverses. As such, the budget’s impact on SGS and SGD remains relatively muted; our expectation remains for a softer SGD performance this year, towards 1.40/USD by YE15. In South Korea, BoK remains open to a rate cut to boost growth, but remains wary of the impact on the elevated household debt; yields on 3y KTB fell 4bps to 2.09%. Lastly, MGS were weighed by resurfacing concerns over 1MDB’s debt which may require government aid, further adding to Malaysia’s woes and possibly jeopardizing its sovereign rating.

¨   GBPUSD traded firmer ahead of Carney’s testimony to the parliament. While investors remain optimistic on UK’s firmer economic recovery indicated by the data releases, we continue to caution on the overly optimistic stance towards the GBP as it approaches its resistance of 1.55/USD as the uneven global demand alongside uncertainty from the elections may drive the GBP weaker.