FW: RHB FIC Rates & FX Market Update - 27/5/15

RHB FIC Rates & FX Market Update - 27/5/15

27 May 2015

Rates & FX Market Update

UST Curve Flatteners to Persist Through Month-End; Spain and Greek Woes Clouds European Sentiment; Mildly Bearish JPY on Dovish BoJ     

Highlights

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¨    Fed Vice Chairman Fischer’s acknowledgement of a slow pace of FFR hike following a 2015 lift-off and a continued risk-off sentiment from European woes, including the ongoing Greek deadlock and renewed political jitters, were well reflected in the bull flattening USTs and Bunds overnight. We expect the curve flattening trend to persist into month-end and amid a week of short to belly UST supply (USD90bn). The 2y UST auction (BTC: 3.40x; YTM: 0.648%) was supported by indirect bidders who raked up 42.3% of the offering. USD rebounded against most global currencies on the back of strong Durable Goods Orders and a better than expected inflation report. EUR, JPY and AUD were notable underperformers, weighed by their weak fundamentals.

¨    IMF’s removal of undervalued assessment on the CNY suggests a higher likelihood of the Yuan obtaining its reserve currency status. The CNY was little changed overnight; we remain cautious against any near term strength given expectations for a further 50-75bps PBoC rate cut. Meanwhile, the THB depreciated as customs trade balance swung back to deficit amid poor customs exports; uncertainty arising from the draft constitution referendum and a dovish BoT is likely to pressure the USDTHB pair higher in the near term. In Singapore, the SGDUSD weakened despite May’s firmer IP recorded. We expect MAS to maintain the SGD NEER at October’s meeting. Elsewhere, the underperformance in JPY is likely to continue driving bearish sentiment on the KRW in the near term, as Korean exporters continue to feel the brunt of the all-time low JPYKRW registered yesterday. 

¨    USDJPY broke its 7y high, to 123.07, driven by the upbeat overnight data out of US amid a lack of domestic catalysts. In line with expectations, the April 30 minutes is likely to be a non-mover where expectations for further BoJ stimulus is likely to be supportive of our mildly bearish view on JPY, as recovery pace remains fairly slow.  

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