31 March 2015
Rates & FX Market Update
USD Remained Firm Amid Quarter End Rebalancing; AUD Underperformed on Declining Commodity Prices
¨ Marginal gains were seen on USTs despite healthy household data as investors continued to dwell on Yellen’s dovish comments. Yields on 10y USTs are likely to hover around 2.0% amid quarter end rebalancing, bolstered by prospects of a slower rate hike trajectory and is likely to support the USD’s resilience against major crosses in the shortened week ahead. BTPS and SPGBs gained amid healthy demand at the BTPS reopenings while movements on core EGBs were muted ahead of ECB’s minutes, as investors await further clues on ECB’s plan to fulfill the PSPP purchases as core EGB yields continue to edge closer to the -0.2% limit. Else, the AUD fell 1.07% to 0.7652/USD as AUD sentiment weakened alongside softer commodity prices while yields on ACGBs fell 4-5bps as investors continue to price in an increasing likelihood of a RBA rate cut.
¨ In South Korea, the weak consumer confidence and IP print is likely to build the case for further BoK easing, where we opine for the all time low KTB yields to be further pressured lower. Else, ThaiGBs and THB shrugged off optimism from an unexpected growth on manufacturing production data, as attention turned towards the government’s intention to lift the martial law, where we opine for it to likely be a non-event, as Junta retains its capacity to maintain peace and order. Over in Indonesia, yields on IndoGBs rose 3-11bps ahead of the IndoGB reopening which is likely to remain soft on deteriorating appetite amid a weakening IDR and higher gasoline prices which could spur inflation.
¨ EURUSD edged lower overnight, falling back towards its short term support of 1.0826, after failing to break above 1.10. Dovish minutes detailing ECB’s decision to extend PSPP purchases up to -0.2% yielding govies alongside a likely hawkish tilt from Fedspeaks this week may cap any upward momentum of the EUR, and drive it lower towards its next support at 1.06/USD.