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

3 March 2015

Rates & FX Market Update

USTs Fell amid Surprise Upside in January US Core Inflation; AUD Under Pressure on RBA’s Rate Cut Expectations  

Highlights

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¨    USTs bear steepened overnight with January’s core PCE beating market expectations, reigniting investors’ speculations for an early rate lift-off while anticipation for >200k NFP on Friday could sustain the UST curve steepening. Similarly, Gilts fell as manufacturing PMI accelerated to its fastest pace in seven months and ahead of Thursday’s BoE meeting; the GBP was marginally lower against the USD but we expect the resilient PMI prints to support the GBPUSD. In the Eurozone, manufacturing figures were broadly mixed but markets are likely to shift their attention to Thursday’s ECB meeting where the central bank is likely to commence its bond purchasing program. As such, we maintain our mild overweight stance on PEGBs with preference towards SPGBs and BTPs. In Australia, yields on ACGBs inched higher ahead of RBA’s rate decision where we opine for a likely 25bps cut to be priced into the ACGB curve while we expect a knee jerk reaction to push the AUD below its 5y low of 0.7626/USD.  

¨    MYR led Asian currency losses for a second consecutive day while govies were broadly mixed. ThaiGBs outperformed at the belly of the curve as the softer CPI intensified speculations of a BoT rate cut where we reiterate our mild overweight stance on ThaiGBs, amid anemic recovery in exports and subdued CPI. Else, USDIDR touched an intraday high of 13,001, breaking the previous 2008 high while IndoGBs fell ahead of long dated auctions where we expect demand to be supported by a larger than expected drop in headline inflation.

¨    MYR extended losses overnight to 3.63 against the stronger USD as the greenback surged to a decade high despite a better footing in the in Brent oil prices. Regardless, Zeti’s comment on the undervalued MYR echoes our resilient fundamental view on the currency, where we expect positive trade balance figures to offer some respite to the MYR’s decline.

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