RHB FIC Rates & FX Market Update - 16/4/15

16 April 2015

Rates & FX Market Update

Disappointing Data Fueled Gains in USTs; ECB Held Rates & Affirmed PSPP’s Timeframe ; S&P Downgraded Greece with Negative Outlook   

Highlights

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¨    Bund curve bull flattened as Draghi affirmed PSPP’s implementation time frame and assured that there will be no cuts to the deposit rate; EURUSD edged higher, shrugging off news from Greece’s downgrade by S&P to CCC+. Draghi’s comments are likely to be constructive for OAT and SPGB auctions later today. Risk aversion extended overnight with UST gaining as IP data fell short of expectations in March. The spate of recent lack luster data is likely to intensify expectations for a delay to the Fed’s tightening cycle where we can expect further downward pressures on yields should CPI data surprise on the downside; the USD was weaker against major crosses. In the UK, the tight contest between the conservative and labour party sparked no clear winner as May 7 polls draws close; the continued uncertainty spurred further sell down across Gilts amongst offshore players. ACGBs mimicked USTs where we expect Australia’s elevated unemployment prints (Mar: 6.1%) to remain supportive of an RBA rate cut in May.   

¨    In China, we continue to see investors re-pricing in further PBoC following a series of weak economic data, prompting gains in CGBs. SGDMYR hit an all-time high of 2.7317 at the opening this morning, as SGD continued to gain modestly following status quo decision by MAS. The pair is likely to retrace lower, as MYR strengthened on higher oil prices. Else, IndoGB yields trended higher as Indonesia’s trade deficit (Mar: USD1.132bn) widened to December 2013 highs; we expect the wider trade deficit to weigh on investor sentiment while BI’s active intervention should contain the IDR’s weakness. Else, India’s WPI dipped further into contraction, increasing rate cut prospects, supporting small gains on Gsecs.  

¨    AUDUSD closed in on its 50-day MA last night, touching an intraweek high of 0.7701/USD. The AUD strength was largely supported by higher oil prices and a weaker USD where we expect the reprieve to be short-lived given the economy’s dependence on exports while China’s economy continues to slow, reflected in its softer IP print. As such we maintain our bearish view on the currency.

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