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

15 May 2015

Rates & FX Market Update

Lower Jobless Claims Unlikely to Avert Long USD Positions; IMF Cuts Korea GDP Forecasts; BSP Held Rates

Highlights

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¨    USTs reversed earlier losses sustained this week as the lower initial jobless claims painted a sanguine outlook for US, partially offsetting the weak sentiment from softer data printed earlier. However, the better jobless claims on the back of a recently mixed jobs data may be insufficient to alter investors’ rate normalisation expectations, where we see the unwinding of long USD positions to continue driving the DXY lower this week. Meanwhile, Draghi reiterated his comments on the effectiveness of the PSPP in stimulating growth drivers, while asserting that the low interest rates has not upset financial balances despite ECB’s firm commitment to continue asset purchases; peripheral EGBs recorded overnight gains for the first time this week.

¨     IMF lowered Korea’s 2015 GDP forecast from 3.3% to 3.1% while opining for further monetary policy manoeuvrability as it cites key risks from the slower growth in trading partners and decreasing export competitiveness stemming from the weaker JPY. Yields on belly to longer dated KTBs declined 3-4bps ahead of BoK rate decision amid speculations of a BoK rate cut despite the strong rise in household debt; BoK held rates at 1.75% this morning. Aside, BSP’s decision to hold rates was in line with market’s expectations; yield movements on RPGBs were relatively stable overnight where we opine for steady growth and benign CPI to likely keep BSP on hold through 2015. Meanwhile, the y-o-y decline in India’s WPI was supportive of the firmer overnight trading in GolSecs, as we see the fairly lower food and fuel prices will provide an impetus for the RBI to cut rates in June.

¨    The firm trading movements in the crude oil prices continued to bolster strength in the MYR ahead of the 1Q GDP data release. We expect MYR to maintain its modest appreciation trend against the USD, buoyed by the strong 1Q GDP print (RHBRI forecast: 6.0% y-o-y), supported by subdued inflationary pressures, keeping BNM on hold through 2015.

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