FW: RHB FIC Rates & FX Market Update - 3/11/14

3 November 2014

Rates & FX Market Update

BoJ Surprised Markets With Boost to Bond Buying Program; JPY Broke 112.5 Resistance; BTPs, PGBs Led Eurozone Bond Performance

Highlights

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¨    Positive US data sustained USD strength against DM currencies while USTs lost on Friday, adding 2-4bps. GBP retreated from the 1.5947 near-term support as Gilts mimicked USTs. In the Eurozone, EGBs rallied as peripheral bonds led gains largely due to BoJ’s surprise measures to accelerate bond buying; Eurozone unemployment remained unchanged (Oct: 11.5%) but CPI rose to 0.4% in October, easing pressures on the ECB ahead of Thursday’s meeting while the EURUSD touched a session low of 1.248 on upbeat US data. The JPY broke the 112 resistance, hitting a 7-year high of 112.467 following BoJ’s decision to boost monetary stimulus on fears of missing its CPI target of 2% in 2015. The AUD broke below its near-term support of 0.8749 on weaker than expected Chinese manufacturing data; ACGB curve bull steepened ahead of Tuesday’s RBA meeting.

¨    Asian currencies were mixed with IDR and INR resilient against the stronger USD while govies painted a similar picture. The SGD broke its near-term resistance of 1.283/USD while SGS were little moved; unemployment edged lower to 1.9% in 3Q. In Korea, offshore investors supported demand for KTBs, with the belly segment leading gains; the KRW was up over 1% as the trade surplus which more than doubled, due to softer import growth, failed to subdue short positions. CNY held firm while CNH was marginally weaker on disappointing PMI data, which underscores the slack in the economy; short-to-belly CGBs gained with yields dropping 1-9bps. Lastly IndoGBs and GSecs rallied as investor sentiment was buoyed by positive domestic developments.

¨    The AUDUSD broke its near-term support of 0.8749 largely due to weakness in Chinese manufacturing data. Technicals suggest the AUD to weaken further as the RSI inches closer towards oversold levels, especially with the current optimism in the greenback.  3Q inflation printed in line with consensus expectations but was softer than 2Q where we expect the RBA to remain supportive to spur domestic consumption.

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