RHB FIC Rates & FX Market Update - 17/4/15

17 April 2015

Rates & FX Market Update

10y Bunds Below 0.1%; BI Sees 1Q15 Current Account Deficit at 1.6%; Thai New Constitution May Prolong Recovery Cycle  

Highlights

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¨    Yields on 10y GGB surged to a two-year high of 12.6% on continued debt woes while Bund yields fell further towards an all time low of 0.084%. We expect ECB’s PSPP to pressure EGB yields lower and extend the negative yield trend towards the longer dated Bunds. US released a great deal of Fedspeaks overnight but lacks new information for digestion; Fischer downplayed the sluggish US housing starts but we expect demand for USTs to remain strong given its relative attractiveness to other DM debt. Meanwhile, yields on ACGBs rose following stronger-than-expected jobs data while AUD surged above its 50day MA to 0.7822/USD supported by higher oil prices and a weaker USD; maintain modest overweight on ACGBs given RBA’s continued easing bias.  

¨    In Asia, Chinese SDR inclusion and the debate between India and Chinese growth rates continued to dominate headlines alongside BI’s expectation for the 1Q15 current account deficit at 1.6% (previous forecast: 2.7%) given improving trade surplus which could provide a short-term boost to the IDR. In Thailand, we opine that the new constitution to limit individual political party powers and may further the divide in Thai’s politics and prolong the Thai’s recovery cycle. Nonetheless, ThaiGBs found support on expectations for another 25bps BoT rate cut in line with Thai’s Finance minister expectations to ease the strong THB which has weighed on its exports; maintain mild overweight ThaiGB and neutral THB. Else, Singapore’s March NODX surged 18.5% y-o-y (est: -1.1%) and is likely to support short term SGD bulls with USDSGD edging lower to 1.350/USD.

¨    Strength in GBPUSD pair remains supported by the softer appetite for USD, climbing to its 1w high of 1.4971/USD on a quiet calendar. The pair is likely to break above  its near term resistance of 1.4991/USD as technicals suggest room for further upside momentum while weak US CPI data is likely to spur USD bears which could offset the bearish sentiment stemming from UK’s electoral uncertainty.

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