RHB FIC Rates & FX Market Update - 23/3/15

23 March 2015

Rates & FX Market Update

DM Bonds Extended Rallies Post-FOMC; Greek Negotiations to Fuel Risk Aversion in the Week  

Highlights

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¨    Investors piled back into USTs as markets continued to price in a pushback in the Fed’s rate hike cycle while the USD dipped against major crosses. Expect yields to rise prior to the 2y UST auction on Tuesday where we expect firm demand on the back of the dovish FOMC. Similarly, Gilt yields mimicked UST movements on Friday where expectations of weak inflation data tomorrow should reinforce BoE’s near term dovish tilt; GBP surged against the USD where we expect the post-dovish FOMC rebound to subside, particularly ahead of subdued UK inflation expectations print due tomorrow. In Europe, EGBs extended gains on Friday, where we expect further volatility to rise as market eyes the ongoing Greek debt talks with the increasing likelihood of a compromise; the EUR was up over 1.9% against the broadly weaker USD but expect uneven PMI data along with the debt negotiations to pressure the EURUSD pair lower.  

¨    In Asia, UST-SGS spreads widened on Friday with dismal NODX data bolstering the prospects of additional MAS easing; expect the USDSGD to edge higher on expectations for weaker CPI later today. Aside, MGS yields were muted despite the weaker CPI print while the USDMYR broke above its 3.7087 resistance level; we expect negative sentiment surrounding the country’s continued macro concerns to pressure the MYR lower. Following BoT’s rate cut, the central bank revised its 2015 GDP forecast lower from 3% to 2.8% underscoring subdued growth in the economy; the THB edged marginally higher against the USD.

¨    AUD surged 2% on Friday as the USD continued to tumble post-FOMC. We opine the recent strength in the AUD as temporary given the Fed’s dovish rhetoric where a stronger 4Q US GDP later this week could reignite USD bulls. The AUD remains fundamentally overvalued given the slack in the economy while prospects of additional easing by the RBA should weaken the AUD further.

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