RHB FIC Rates & FX Market Update - 25/3/15

RHB FIC Rates & FX Market Update - 25/3/15

25 March 2015

Rates & FX Market Update

Subdued Inflation in US and UK Delays Rate Hike Expectations; KRW and IDR Led Asian Currency Gains; BSP to Hold Rates  

Highlights

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¨    US inflation data for the month of February remained below Fed’s 2% target (1.7% y-o-y), shrugging off positive PMI and new home sales data; USTs extended gains overnight. Last night’s 2y auction found better support from fund managers (+>5%) versus a slight dip from indirect bidders (-2.5%) which includes central banks; BTC steady at 3.45x, YTM at 5.60%. We expect the subdued inflation to bolster similar demand at the upcoming 5y auction; the USD closed higher amid another volatile session with some investors paring short positions; GBP underperformed the USD given UK’s larger than expected inflation decline to 0%, pushing back BoE rate hike expectations. The JPY was little changed overnight at 119.74/USD after touching an intraday high of 120/USD, negating the negative manufacturing print earlier yesterday.  

¨    In Asia, CGBs were largely unchanged ahead of the 3y CGB auction later today where we expect firm demand following a dismal PMI print yesterday. Notably, the 7D repo rate continued to tumble, underlining the PBoC’s efforts in stimulating the economy following the contraction in China’s March PMI print. Else, South Korea’s final 4Q GDP print is unlikely to move markets coming in line with consensus’ at 2.7% y-o-y;  KRW broke below its near term support of its 1107.8/USD where we see strong support at 1100. In the Philippines, we expect the wider trade deficit print to pressure the PHP weaker against the USD ahead of BSP meeting tomorrow where we expect interest rates to remain on hold.

¨    The GBP retreated below the 1.4850/USD level after touching an intraday high of 1.4984 as latest inflation data suggested the increasing likelihood of a delay to BoE’s interest rate tightening cycle. As such, we expect subdued inflation along with dismal jobs numbers to reinforce Haldane’s earlier inflation outlook and is likely to pressure the pair closer towards the 1.46 support.

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