19 May 2017
Rates & FX Market Update
BI Committed to Maintain Economic and Financial Stability
¨ Global Markets: Yesterday’s risk-off flows proved temporary, with the DXY retracing 0.31% stronger while the front part of the UST curve ticked 1-2bps higher overnight. Yields on 30y USTs however fell c.2bps, with 2s30s trending to the lowest level since October 2016. Both weekly initial and continuing claims data due fell w-o-w, as US labour market continues to exhibit strength; eye 10y UST yields to average 2.40% over 4Q17 on robust safe haven flows. Australian labour data came in strong for the month of April, with employment ticking higher by 37.4k (consensus: 5k) amid a surge in part-time employment, while unemployment rate ticked lower to 5.7% (consensus and Mar: 5.9%). While the AUDUSD pair jumped on the better-than-expected data, gains were subsequently retraced as the dollar recovered ground; remain neutral AUD.
¨ AxJ Markets: The MYR fell marginally against the USD overnight as risk-off flows impacted regional currencies, although the Ringgit declined the least among peers. USDMYR remains largely within a tight range of 4.31-4.35, with the pair’s volatility staying subdued still; stay neutral MYR over the medium term, although the currency has the potential for further gains over the short run. Over in Indonesia, BI maintained its 7D RRR at 4.75%, in line with consensus and our expectation, amid lingering external and domestic risks balanced by the need to maintain the current growth momentum. The Bank noted that inflows arising from the improving sovereign rating outlook have supported the IDR, despite the escalation in geopolitical and political risks globally. BI also reaffirmed its commitment to a stable IDR; stay neutral IDR.
¨ GBPUSD fell 0.28% overnight, although the pair briefly broke the 1.30 resistance level intraday after April retail sales beat consensus estimates (4.0% y-o-y; consensus: 2.1%; Mar: 2.0%, including auto fuels). The pair flash-crashed during the US session, after the dollar retracement likely triggered selling/stop-loss orders near the 1.2980 region; we reiterate our neutral GBP stance ahead of the UK snap election.
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