RHB FIC Rates & FX Market Update - 16/3/15

16 March 2015

Rates & FX Market Update

DM Bonds Took a Breather from Continued Gains; AUD Extended Decline Ahead Amid Expectations of a Dovish RBA 

Highlights

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¨    UST yields edged slightly lower on the back of the softer March US consumer sentiment data and the slower PPI release while the USD continued to strengthen against major crosses on Friday. Over in the Eurozone, Core and Peripheral govies took a breather from the continued freefall in yields amid the ECB bond purchases, and in the absence of domestic economic events on Friday; EUR remained under pressure (-1.26% to 1.04/USD). Meanwhile, AUD declined 0.96% to 0.76/USD as speculations of an RBA rate cut remains on the cards, where we expect the minutes due tomorrow to reiterate the central bank’s dovish rhetoric. Elsewhere, JPY gravitated at its YTD high of 121/USD, weighed further by the decline in Japan’s industrial production in January. Our bearish JPY view was further reinforced by Finance Minister Aso’s remarks that the weakening currency stands to benefit the economy.

¨    SGD fell to 1.3918/USD, as Singapore’s weaker retail sales print compounded concerns of a likely weak NODX released tomorrow; SGS-UST spreads to widen alongside weaker SGD. Separately, short-dated KTBs gained as Finance Minister Choi said recovery in consumptions and investment were not stable, reigniting rate cut speculations. Else, MGS gained following the strong demand at the new 10y benchmark MGS (9/25) issuance, with a strong BTC of 2.23x (2014 10y average: 1.91x) at 3.955%; MYR saw relief rally at 3.68/USD despite the stronger USD. In Indonesia, IndoGBs rallied on Friday, reflecting BI’s Governor Martowardojo’s remark that BI will continue to purchase government bonds in the open market, to combat the weakening IDR.

¨    INR suffered a pullback against the USD, as slower growth in exports and imports in February dampened signs of an improving growth in India ahead of the FOMC meeting this week. We expect the INR to remain soft in the near-term, with wholesale-prices on a deflationary trend and exacerbated by the dollar strength ahead of the FOMC meeting.

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