RHB FIC Rates & FX Market Update - 27/4/15

27 April 2015

Rates & FX Market Update

Softer US Data Could Lead To a Dovish Fed Statement, USD Fell; India to Introduce 40y GolSec

Highlights

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¨    Softer capital goods and durable goods orders data added to the string of disappointing US data releases, driving yields on USTs lower by another 2-5bps ahead of FOMC meeting on Wednesday as the set of underwhelming data increases the likelihood of a dovish Fed statement. Similarly, major crosses appreciated against the softer USD, where we opine for the swing in USD to be the main driver of major crosses this week, as a dovish FOMC statement is likely to set the market tone. Meanwhile in Europe, investors shrugged off the modestly strong German IFO business climate surveys, as attention turned towards another stalemate in Greek debt discussions despite earlier optimism from Greek officials. Core-peripheral EGB spreads widened further while 3y GGB yields surged higher by 121bps to 25.6% as Greece’s deadline for further repayments draw closer. Separately, the EC plans to revise Greece’s 2015 GDP forecast lower from its current 2.5% as earlier assumptions of a successful bailout for Greece were overturned and is likely to weigh on the EUR in the near term, which has been benefitting from the softer USD.

¨    In Asia, SGD rallied to 1.33214/USD (+0.70%) despite the weak March IP print; the USDSGD pair continues to be driven by the softer USD, where we see the movements of the pair disassociated with Singapore’s data releases as expectations for MAS to ease the SGDNEER abated. Meanwhile, India is expected to introduce the 40y long tenor GolSec by 1HFY16 in an attempt to build its benchmark curve; yields on GolSec edged higher by 3-5bps following modest demand from Friday’s INR160bn auction. 

¨    MYR appreciated by another 1.20% on Friday to 3.58/USD against the softer USD. We opine for stabilizing crude oil prices amid expectations for BNM’s neutral stance this year to continue supporting MYR’s strength. We recommend for investors to pair the MYR against the SGD, with expectations for the SGDMYR to trend lower towards our target of 2.50.

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