FW: RHB FIC Rates & FX Market Update - 12/8/14

12 August 2014

Rates & FX Market Update

Waning Geopolitical Tensions Supported Risk Taking Overnight

Highlights

¨    DM markets mostly mixed overnight amid a quiet data session but hints of easing tensions in Ukraine and US intervention in Iraq were sufficient to bolster some risk taking, supporting demand for BTPs and PGBs (-2 to -10bps across the curve). The EUR extended losses against a marginally stronger USD overnight; we expect the pair to trend closer towards its near term support of 1.3325 ahead of weaker ZEW survey expectations for both the region and Germany. In Australia, ACGB yields detracted 8-13bps; 10y ACGB/UST spreads widened 12bps to 97bps while the AUDUSD inched closer to its pivotal near term support of 0.92 ahead of business confidence data. Else, the USDJPY slid a further 0.08% to 102.19 despite the improvement in consumer sentiment ahead of BoJ minutes and 2Q GDP today.

¨    AxJ currencies broadly gained on better risk sentiment; IDR led outperformance (+0.86%) but the currency remains vulnerable given structural concerns. In Singapore, 2Q GDP expanded by 2.4% y-o-y in line with expectations; USDSGD remained largely stable between 1.2489/2503 ahead of the release. We expect MAS to keep the SGD on a modest appreciation path at October’s meeting. The USDMYR strengthened from its intra-day low of 3.1950 to 3.1970 following the stronger IP prints (Jun: 7.7% y-o-y; May: 5.5%); RHBRI revises 2Q14 GDP print to 6.3% (1Q14: 6.2%) and FY14 to 5.8% (+0.4%) on signs of better economic activity.   

¨    USDIDR 3m volatility spiked 15.4% w-o-w on weakened risk sentiment given heightened geopolitical risks. The pair currently trades below its 200-day MA and a break below 11,622 (61.8% Fib) could see the pair trend towards its 11,580 support. BI has also revised the fixing rate for IDR forwards lower at 11,728 from 11,822 ahead of its Thursday’s meeting where we expect BI to maintain its accommodative stance.