FW: RHB FIC Rates & FX Market Update - 8/3/18

 

 

 

8 March 2018

 

 

Rates & FX Market Update

 

 

Indonesian Foreign Reserves Dipped as IDR Faced Headwinds

 

Highlights

 

¨   Global Markets: Major markets were relatively quiet on Wednesday with the broad Dollar index and UST trading flat. Ahead of the labour report on Friday, ADP came in stronger than expected (235k vs 200k) but the wage growth will catch the spotlight given the recent turmoil spurring from higher inflation consequences. Donald Trump and the remaining economic advisers continue to defend foreign metal tariffs while possibly moving to a country-by-country basis. The EUR, GBP and JPY were marginally higher by c0.05% with little positioning ahead of ECB and BoJ meetings.

¨   AxJ Markets: Moving on to Asia, Indonesia’s February foreign reserves dipped USD3.9bn to USD128.1bn, with the central bank likely defending the IDR. Governor Martowardojo also reaffirmed the institute’s commitment to guard against currency volatility to maintain investors’ confidence alongside preserving macroeconomic stability. At this juncture, we reiterate our previous stance that modest drawdowns in the reserves are unlikely to materially impact Indonesian external fundamentals over the short-run, although persistent global market volatility will likely be IDR-negative towards the latter half of 2018; we retain our neutral IDR stance.

¨   USDMYR was little changed overnight after BNM opted to hold the OPR at 3.25% in its 2^nd bi-monthly policy meeting for the year, although the central bank pared back its 2018 inflation forecast due to lower import costs. Our economic team eyes another 25bps OPR hike later in the year, and we believe that the central bank will keep a keen eye on Malaysia’s economic developments over 1H18 to support any rate decisions; upside growth and inflation surprises will again push the central bank towards another pre-emptive tightening. In another data print, while foreign reserves climbed USD0.1bn to USD103.7bn (as of end-Feb), foreign ownership of government securities fell to 27.5% (Jan: 28.0%) on mounting global risks. We are not too concerned over the MYR at the moment, with the stable momentum likely to be supported by still-sanguine sentiment among investors.