RHB FIC Rates & FX Market Update - 17/3/15

17 March 2015

Rates & FX Market Update

USTs Extended Gains Amid Signs of Sluggish US Manufacturing Sector; RBA’s Dovish Minutes Signaled Further Inclination to Ease

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 was marginally impacted by the decline in NODX as it shows early signs of consolidation at 1.390/USD; expect possible widening of SGD NEER bands by MAS to mitigate the growing volatility in FX markets. PHP pull backed modestly 44.4/USD, as remittance growth slowed 0.5% y-o-y (consensus: 6.0%). Meanwhile, IDR remained under pressure against the USD even as trade surplus widened, due to a steep y-o-y decline in exports. IndoGBs reversed gains where we opine for BI to stand pat today while continuing its govies purchase in the open market to curb the weakening IDR. Else, India’s wholesale prices delved deeper into negative territory which may see further easing by the RBI; USDINR edged higher to 62.813.

¨    MYR continued to test 3.71/USD, largely driven by the weaker overnight movements in oil prices. MYR remains undervalued relative to our 1Q15 forecast (3.60/USD), and is expected to stay muted ahead of Malaysia’s slower headline CPI release tomorrow as expectations remain for BNM to stand pat through 2015 to support economic growth.