RHB FIC Rates & FX Market Update - 11/6/15

11 June 2015

Rates & FX Market Update

Bearish Overnight Movements in Global Bond Markets; KRW Seen Taking Cues From JPY’s Rebound and BoK’s Rate Cut

Highlights

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¨    USTs extended losses overnight, as investors remained cautious for further upward yield pressure on expectations for upbeat US retail sales later today, extending a run of upside data surprises. Notwithstanding, demand at the USD21bn of 10y UST auction was robust with BTC of 2.74x, compared to 2.72x and was the highest since 2.97x in Dec-14. Its yield was done at 2.461%, the highest since September-14. Over in the UK, Gilt yields and the GBPUSD were seen higher in response to better than expected data from industrial and manufacturing production prints for April. In Australia, Glenn Stevens’ remarks suggest room for further easing but remained cognizant of higher housing prices, particularly in Sydney, which may reduce the likelihood of further near term rate cuts; expect some bullish support to the AUDUSD pair as unemployment edged lower to 6% (-0.2%) in May.

¨    In AxJ, expect short-end KTB yields to edge lower on BoK’s interest rate cut of 25bps, to its record low of 1.50% and its fourth reduction since August 2014. The unexpected cut stemmed from policymakers concerns over the MERS outbreak that could further undermine South Korea’s slowing economic growth. Separately, short-dated ThaiGBs fell in response to BoT’s unanimous decision to maintain its benchmark interest rates unchanged at 1.50%, following two unexpected cuts in April and March this year. Over in India, the INR was firmer against the USD on better external balance data; the trade balance swung to trade surplus in 1Q15 which contributed to a narrower current account deficit narrowed at 0.2% of GDP q-o-q, down from -1.6% (4Q14).

¨    USDKRW fell 0.97% to 1,108, tailing the pullback in the USDJPY as remarks by BoJ’s Kuroda highlighted an overly weakened currency which is unlikely to fall further. However, we maintain our view for a mildly bearish KRW, as BoK’s 25bps rate cut will further keep the currency trading on a softer note.