Maybank GM Daily - 1 Apr 2014

FX

Global

·         Fed Chair Yellen took on a dovish tone yesterday. She said that the slack in the labour market still requires “extraordinary commitment and will be for some time” from the Federal Reserve. 10-year yields took a peek above 2.76% before slipping to around 2.72% as we write in Asia morning. Equities were rather buoyant throughout overnight session with DJI at 0.82%, S&P 500 at +0.8% and NASDAQ at +1.0%.

·         Earlier on Mon, the Euro-area’s inflation report missed expectations with the Mar CPI estimate at +0.5%y/y and the core measure at 0.8%. Still, EUR remained surprisingly resilient and even extended gains above the 1.3800 on the back of EUR/JPY before drifting back towards the technical resistance-turned-support at 1.3774 this morning.

·         April Fool is a busy day for Asia, as with every first day of the month. China will release the HSBC version of PMI-mfg for Mar.  The NBS version improved to 50.3. RBA meets later this morning and a steady rate decision is widely expected around noon.

·         Elsewhere in South-East Asia, Indonesia is back from a long weekend with Mar CPI and Feb trade numbers. Thailand will release its inflation figures around noon as well. Amid the barrage of data releases, Asia as a whole is likely focus on China’s PMI-mfg which came in at 50.3, surpassing consensus. The HSBC version disappointed at 48.0 vs. the average estimate of 48.1. Thereafter, US manufacturing numbers will be key before ADP report tomorrow.

G7 Currencies

·         DXY – Sideways. The index has slipped from its overnight highs to around 80.10 in early Asia trade. Bias is slightly to the downside the moment. Manufacturing data is due later. However, we reckon there is little directional clue until the release of the ADP and NFP report. Sideway gyrations to dominate intra-day trade within the 79.920-80.30 range.

·         USD/JPY – Tilting Higher. Pair was choppy in a higher 103.00-103.50 range in New York session. 1Q Tankan is released. Overall, business confidence improved but not without apprehension about the sales tax hike in effect today. USD/JPY is losing bullish momentum and may risk paring overnight gains to 102.80. Topside barrier for the pair is seen at 103.44.

·         AUD/USD – Supported. Pair is back on the upmove again, taking advantage of the dollar weakness. Last sighted around 0.9270, investors are expecting the central bank to keep its tone neutral after the rather sanguine business surveys seen so far and the latest improvement in the labour market. Another neutral tone could give AUD bulls more room to run but we reckon the current level is not likely to be in the favour of the central bank. We see risks of jawboning. Having said that, AUD/USD pares much of its bearish momentum this morning and faces bullish risks again. Break of the recent high of 0.9295, exposes the next target at 0.9387. 0.9218 to slow offers.

·         EUR/USD – Resilience. Pair was able to head higher, even after the sub-par inflation report. EUR/USD has softened from overnight highs to around 1.3774 and seems to be sticky around this level. Further decline is now slowed by support at 1.3725. 1.3818 guards the topsides, ahead of the next at 1.3847.

Regional FX

·         The SGD NEER trades 0.45% above the implied mid-point of 1.2635. The top end is estimated at 1.2383 and the floor at 1.2886.   USD/SGD – Rangy.  The USD/SGD is still below the 1.2600-level following dollar weakness overnight. Currently sighted higher at 1.2587, downside risks are dissipating, suggesting little directional clarity ahead. We continue to expect 1.2560 to provide support today ahead of 1.2529 (61.8% Fib retracement from the Oct-Jan upswing), while 1.2615 acts as barrier.

·         AUD/SGD – Upside risks.  The cross is hovering higher around 1.1680 this morning on the back of AUD strength with downside risks on the wane. 1.1716 should cap upside today while 1.1643 should limit downside.  SGD/MYR – Downside bias.  The cross saw a bearish engulfing move this morning, which pushed the cross below the 2.6000-level. Last sighted at 2.5891, risks are still to the downside today with further moves lower possible today. We look for 2.5864 to provide support while 2.6000 is seen as resistance today.

·         USD/MYR – Downside momentum. Pair remained under the 3.26-figure, and risks remain to the downside according to the momentum indicators. The 6-Mar 3.2465 low could be revisited soon. Both momentum indicators on the intra-day chart still points south and we expect pair to tread water towards the 3.25-figure today.  3.2673 is the interim barrier ahead of 3.2750. 1-month NDF steadied around 3.2630. MACD pares bearish momentum while RSI prints 39.2. We think dips below the 3.26-figure could be shallow.

·         USD/CNY was fixed lower at 6.1503 (-0.0018), vs. previous 6.1521 (+2.0% upper band limit: 6.2758; -2.0% lower band limit: 6.0297). CNY/MYR was fixed at 0.5274 (-0.0002).

·         USD/CNY – Steady. Spot hovered around 6.2170 this morning with upticks capped by a lower fixing. The improvement of the official PMI-mfg for Mar lent support to yuan this morning but the poorer HSBC version weighs now. We expect the pair to in sideway gyrations, with upsides well guarded by 6.2340. Intra-day offers could be slowed by 6.2114. A PBOC’s Zhengzhou training school professor stated that an “over-depreciation” of the yuan is part of normal market volatility (BBG). Elsewhere, BOE signed yuan clearing agreement with PBOC. In other news, President Xi Jinping visited Brussels on Monday and gotten an agreement to discuss a free-trade deal. Mar PMI-mfg came in above consensus at 50.3. The HSBC version deteriorated further to 48.0.

·         1-Year CNY NDFs – Supported. The 1Y NDF is on the downtick around 6.2310 this morning, moving in tandem with spot. Pair has pared much of its bullish momentum. Sentiments have soured on the deterioration in the HSBC PMI-mfg. 6.2290 marks the nearest technical support ahead of 6.2200.

·         USD/CNH – Choppy. Pair waffled around 6.2100, having slipped from its earlier 6.2151 high after the fixing. 6.2050 is still the support level. CNH retains premium against the CNY. Risk appetite is dampened by the HSBC PMI-mfg for China. We think two-way action is likely to continue within 6.2050-6.2266.

·         USD/IDR – Bearish tilt. Onshore market reopens today after yesterday’s holiday with the USD/IDR trading lower at around 11280 currently. The break of 11300-level, if sustained, could mark the start of a bearish extension with 11275 as support. Still, we could see some volatility ahead of parliamentary elections on 9 Apr. 11400 acts as barrier for today. The 1-month NDF broke below the 11300-level yesterday, hovering around 11270 at last sight with momentum still to the downside. There was no fixing for the JISDOR because of the onshore holiday yesterday.   Indonesia’s Mar CPI and Feb Trade data are eyed today. Market is expecting inflation to ease to 7.35% y/y in Mar to 7.75% in Feb, while exports and imports are expected to come in at -1.6% and -3.0% y/y respectively with the trade balance likely to record a surplus of USD300mn vs. Jan’s –USD431mn.

·         USD/PHP – Range-bound with slight downward tilt.  The USD/PHP dipped to a low of 77.750 this morning before recovering to hover around 44.790 at last sight. Yesterday, the PHP was supported by continued foreign buying of a net USD31.3mn in equities. With bearish momentum waning as indicated by our 4-hourly chart, further downside could be limited today. Price action could see the pair hover between 44.700/44.916 today with risks tilted slightly to the downside. The 1-month NDF is little changed this morning at 44.770 with MACD still below the zero line.

·         USD/THB – Wobbly with downside bias. The USD/THB is again wobbling in the morning after Yellen’s dovish comments yesterday. The pair is currently edging higher at 32.418 at last sight, though risks are now to the downside with the 4-hourly RSI showing the pair in oversold conditions since yesterday. Foreign funds remained bullish on Thai assets, buying a net THB3.8bn and THB2.1bn in equities and bonds yesterday, and continued bullishness today should again weigh on the pair. However, the protracted political crisis continues to pressure on the upside. Price action today should see 32.400 deterring downsides, while 32.500 should cap upside today. Thailand’s economic activities continued to soften in Feb from Jan, but the current account remained in surplus (of USD2.68bn) helped by a drop in imports. Given weaker data and the protracted political crisis, the BoT is forecasting 1Q14 GDP to contract vs. 4Q13, as is our economic team. They have also downgrade 2014 GDP growth to 3.0% from 3.25% previously. Meanwhile, Mar CPI is on tap today and market is expecting an uptick to 2.1% y/y from 1.96% in Feb.

Rates

Malaysia

·         Local government bond market opened relatively unchanged with mostly direct trades. Strong MYR at the opening failed to spark trading activity. All eyes focus on the nonfarm payroll this Friday. Interest was seen in off-the-run 3/20 and 3/23 with MYR229m and MYR451m being done respectively. The 5 and 10-year MGS benchmarks traded 1-2bps lower while the rest of the benchmarks traded unchanged.

·         Rates went up the most in the belly by 3bps compared to the short-end and long-end rates’ milder 1bp increase. Some arbitraged through receiving 5-year offshore and paying  5-year onshore - spread was 16bps.

·         The PDS market was quiet in the last day of the month. Danainfra 2023 traded at 4.59%. Decent volume of Sabah State 2014 changed hands at 3.61%. The focus is on IJM which is expected to open its primary issuance soon.

Indonesia

·         Please note that there is no note on Indonesia Fixed Income as onshore markets were closed on Mon (31 Mar).

Rgds,

Maybank FX Research

Global Markets

Maybank