RHB FIC Rates & FX Market Update - 13/4/15

13 April 2015

Rates & FX Market Update

Markets Found Firmer Footing Amid Lack of Negative Data Catalyst; Weaker MYR to Provide Buffer to Sluggish Exports

Highlights

¨                   

¨    No surprises from BoJ minutes in March which affirmed QQE and acknowledged the declining JGB yields and liquidity; USDJPY to range trade at 119-121 ahead, skewed towards the upper bound on expectations for another downward revision in FY15 CPI target. USTs closed mixed overnight amid a lack of data catalysts with the 10y hovering around 1.9%; USD broadly gained against major crosses with the Dollar Index testing a 3-week highs. We maintain our view for the USD to maintain its appreciation path, albeit at a moderated pace versus 1Q15 following further divergence in global policies and its ill effects on US exports. In UK, GBPUSD fell to 1.46 overnight, weighed by poor Feb IP prints due to a slowdown in the mining and oil and gas sector.

¨    In AxJ, Moody’s raised South Korea’s Aa3 outlook to positive on improved fiscal prudence where we opine for the upward revision in outlook to support further inflows given its relatively attractive carry, and offset some depreciation pressures from the stronger USD. Malaysia’s February IP print was softer at 5.2% y-o-y due to weaker demand for exports amid a shorter month, attributed to festivities which led to a substantial slowdown in manufacturing production. RHBRI opines that the ongoing infrastructure spending and the weaker MYR will likely provide a buffer to the sluggish exports, with 1Q15 GDP growth resilient at 5%; MYR up 0.97% overnight to 3.66/USD. Separately, India’s IP rose by 5.0% y-o-y in February (consensus: 3.3%), attributed to the sharp pick-up in manufacturing and power output; USDINR inched lower to 62.32. Else, we view Indonesia’s introduction of tax incentives to foreign investors as positive for the current account position, as well as to contain IDR weakness.

¨    SGD fell to 1.36/USD (-0.63%) overnight ahead of the MAS meeting, where expectations for softer 1Q15 GDP, to be released tomorrow, may have dampened earlier elation as investors tilted towards status quo from an earlier bias towards easing. We eye the 1.3610 support for USDSGD, where a status quo decision from MAS may spur a brief rally towards 1.35/USD.

¨             

¨