RHB FIC Rates & FX Market Update - 20/4/15

20 April 2015

Rates & FX Market Update

China Firmly on Easing Mode with Aggressive RRR Cuts; Narrowing Japanese Trade Deficit to Bolster JPY Strength

Highlights

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¨    On Sunday, PBoC announced cut RRR by 1.0% to 18.5% effective today, likely to boost interbank activity given the added liquidity; expect CGBs yields to remain low on the back of PBoC’s accomodative policy and neutral CNY given PBoC’s urge for currency stability. Meanwhile, ThaiGBs and THB saw modest gains as the Thai Government tabled its new constitution draft to the advisory council; we expect a potential political divide to prolong Thailand’s economic recovery cycle, increasing the odds for another BoT rate cut to boost the slow recovery. Separately, MYR found stronger footing at 3.62/USD on the back of the rising oil prices and Governor Zeti’s remark that the MYR remains undervalued and does not reflect the underlying fundamentals.

¨    In the global markets, short-end UST yields rose in response to the pick-up in US core CPI March at 1.8% y-o-y (Feb: 1.7%), supporting hawkish Fed members still gearing for a possible rate hike as early as June this year. Meanwhile, GBP rose to its 1 month high of 1.50/USD as signs of better jobs creation in UK provided a brief reprieve from election uncertainties; we remain mild overweight on Gilts and neutral on GBP. In the Eurozone, 10y Bunds continued to make new lows (0.077%) where we expect ECB’s PSPP to continue extend negative yields towards the longer dated Bunds; bearish EUR. JPY inched close to its 118.33/USD major support after consumer confidence improved for the 4^th consecutive month in March; expect a narrowing trade deficit to continue bolstering strength in JPY; bearish EURJPY.

¨    USDMYR traded below its 50-day MA of 3.65/US, touching its lowest point since early March (3.61/USD). Malaysia returns to a net oil exporter over the 2M15, where we believe that it is constructive for the MYR on the back of a gradual pick up in global commodity prices. The break below the 3.62/USD support on Friday indicate a stronger bullish momentum over the near-term.         

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