RHB FIC Rates & FX Market Update - 14/4/15

14 April 2015

Rates & FX Market Update

Choppy Asian FX; MAS Kept Policy Band Unchanged; World Bank Trimmed China and Developing East Asia’s Growth Forecast

Highlights

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¨    USTs saw modest gains where investors remain unfazed on comments made by Fed’s Lacker as he remains tilted towards a June rate liftoff, viewing the recent softness in US economic data as temporary. Meanwhile, long-end EGBs took a breather amid a quiet trading day; we expect ECB’s PSPP to continue supporting EGB rallies. In UK, Gilts modestly fell with offshore investors remaining cautious; we expect heightened volatility as UK general elections draws near.

¨    Asian currencies extended declines against the USD, as the World Bank cut growth forecasts in China and Developing East Asian economies, namely Malaysia (-0.2% to 4.7%) and Indonesia (-0.4% to 5.2%). In China, exports and imports slid in March, narrowing its trade surplus to USD3.08bn (previous: USD60.6bn), reinforcing growth concerns amid the firm CNY performance over the 1Q. We eye the 1Q Chinese GDP data released early tomorrow where it may provide clearer insights on China dependence on exports and its progress on economic rebalancing. Correspondingly, AUD continued its decline (-1.10%) overnight, weighed down by poor Chinese trade balance data. Separately, USDSGD edged lower below its 50-day MA of 1.366, following the MAS status quo outcome with no mention of any changes to quarterly meetings, where we recommend for investors to add on long USDSGD on dips with weakness largely driven by the firmer USD. The policy stance remains consistent with the subdued inflation outlook and moderate growth prospects. In India, inflationary pressures unexpectedly dipped to 5.17% y-o-y (-0.20%) shrugging off initial concerns of crop damage and increasing the likelihood of an RBI rate cut in June; we maintain our mild overweight stance on GoISecs.   

¨    MYR suffered a pullback towards  3.70/USD (-1.14%) overnight, on persistently stronger USD and the World Bank’s recent downward revision to Malaysia’s growth outlook. While we remain biased for a moderating USD, we remain neutral on the MYR as we opine that the market may have not fully priced in a downgrade by Fitch ahead, taking to account MYR’s sentiment-driven volatility.