22 July 2014 Rates & FX Market Update Markets Remains Driven by Safe Haven Demand; AxJ Currencies Broadly Firmer; IDR Rallied Ahead of Election Results Highlights • Amid a muted data flows yesterday, prolonged geopolitical tensions continued to drive small gains in the long dated USTs ahead of US CPI due later. Our economist expects a 0.2% and 0.4% m-o-m increase in core and headline inflation respectively, largely in line with market expectations. European government bonds recorded small gains overnight, primarily driven by safe haven demand amid the Ukraine and Gaza tensions alongside weak current account balance data from Portugal and Greece. UK’s easing house prices indicated by Rightmove Index was largely overshadowed by risk aversion demand. AUDUSD traded between 0.9371/9401, better offered in the market yesterday ahead of Steven’s speech where we eye further insights from RBA to dampen bullish AUD expectations. • AxJ currencies were broadly stronger against the USD, led by THB and IDR. Thai bond and equity markets both received net inflows yesterday where global funds bought THB10bn of Thai bonds, bolstering demand for THB which strengthened to 31.90/USD where its 14-day RSI fell into the oversold region. In Indonesia, IDR strengthened to a 2 month high, buoyed by an expected victory by Jokowi. However, we opine that the near term optimism may gradually fade as weaker PDI-P coalitions may lead to an overhung parliament (Gerindra-Golka: 59.2% of votes) which is in turn negative despite the party’s positive fiscal intentions. • The USDTHB breached its 32.1-32.7/USD range, driven by inflows following General Prayuth Chan-ocha’s televised speech, citing export growing 7.2% y-o-y in June, ahead of the official release due on July 31. Despite the short term boost in THB, we opine for THB to trend towards 33.0/USD by year-end as investors search for higher yields as regional peers tighten monetary policies.

22 July 2014

Rates & FX Market Update

Markets Remains Driven by Safe Haven Demand; AxJ Currencies Broadly Firmer; IDR Rallied Ahead of Election Results

Highlights

¨    Amid a muted data flows yesterday, prolonged geopolitical tensions continued to drive small gains in the long dated USTs ahead of US CPI due later. Our economist expects a 0.2% and 0.4% m-o-m increase in core and headline inflation respectively, largely in line with market expectations. European government bonds recorded small gains overnight, primarily driven by safe haven demand amid the Ukraine and Gaza tensions alongside weak current account balance data from Portugal and Greece. UK’s easing house prices indicated by Rightmove Index was largely overshadowed by risk aversion demand. AUDUSD traded between 0.9371/9401, better offered in the market yesterday ahead of Steven’s speech where we eye further insights from RBA to dampen bullish AUD expectations.

¨    AxJ currencies were broadly stronger against the USD, led by THB and IDR. Thai bond and equity markets both received net inflows yesterday where global funds bought THB10bn of Thai bonds, bolstering demand for THB which strengthened to 31.90/USD where its 14-day RSI fell into the oversold region. In Indonesia, IDR strengthened to a 2 month high, buoyed by an expected victory by Jokowi. However, we opine that the near term optimism may gradually fade as weaker PDI-P coalitions may lead to an overhung parliament (Gerindra-Golka: 59.2% of votes) which is in turn negative despite the party’s positive fiscal intentions.

¨    The USDTHB breached its 32.1-32.7/USD range, driven by inflows following General Prayuth Chan-ocha’s televised speech, citing export growing 7.2% y-o-y in June, ahead of the official release due on July 31. Despite the short term boost in THB, we opine for THB to trend towards 33.0/USD by year-end as investors search for higher yields as regional peers tighten monetary policies.