RHB FIC Rates & FX Market Update - 24/3/15

24 March 2015

Rates & FX Market Update

Fischer Outlined Modest Window for FFR Hike; China Flash PMI Signals Contraction; MYR Led Asian Currency Gains  

Highlights

¨                   

¨    Fed’s Vice Chairman Fischer reinforced FOMC’s earlier dovish rhetoric, downplaying the likelihood of a smooth tightening pattern but maintained a modest window for FFR’s hike. USTs gained while the strength of USD faltered amid the thin choppy session as investors continue to re-price rate hike expectations in a defensive manner. Aside, EGBs were broadly lower, led by PGBs, as risk appetite deteriorated ahead of Greek talks later today; the EUR hit a high of 1.0972/USD overnight but unlikely to be a sustainable reprieve when weighed against the region’s still weak fundamentals and ongoing Greek uncertainty.  

¨    China’s flash manufacturing PMI disappointed investors, sliding into contraction at 49.2 in March (Feb: 50.7) on the back of declining new orders; expect the weak data to weigh on the AUD despite strong demand for ACGBs given its relative attractiveness versus global bonds. Meanwhile, PBoC Governor Zhou purported the inclusion of CNY into IMF SDR’s basket as the 5^th reserve currency ahead of the upcoming IMF review later this year. The CNY was previously rejected in 2010 for criticism over its accessibility; China’s 7 day repo rate fell below 4%, unseen since January, following a CNY20bn injection. We expect the CNY to remain volatile and may price in a larger deterioration particularly if controls over the capital account eases.  In Singapore, belly-to long-end SGS gained following softer CPI prints in Singapore for the 4th straight month where we expect subdued inflation and weaker exports to bolster speculation for further easing by MAS.

¨    MYRUSD rebounded on short covering but limited by recovering oil prices (+4.5% w-o-w to USD55.92/bbl).The reintroduction of palm oil export taxes from 0% to 4% for April was a positive driver. Expect the MYR to remain weighed by the foreboding Fitch downgrade, macro and agency vulnerabilities; maintain neutral for now, fixing support may sustain a break below 3.6645 immediate support.

¨