RHB FIC Rates & FX Market Update - 30/4/15

30 April 2015

Rates & FX Market Update

FOMC Highlights 1Q Economic Weakness to be Transitory; EGBs Fell; Short Dated ThaiGBs Rallied as BoT Cut Rates

Highlights

¨                   

¨    Core and peripheral EGBs sold off yesterday as investors were sidelined ahead of the FOMC meeting (10y EGB yields +12-15bps). In addition, the 5y Bund auction failed to hit the EUR4bn issuance sales target for the third time this year, with lower German CPI print likely dimming the lustre of the negative yielding Bunds, spreading underperformance to the rest of the EU govies. Investors are likely to remain cautious ahead of the shortened week, with EU CPI prints partly to dictate the appetite for EGBs, which we expect to stay subdued. Separately, the decline in the DXY persisted (-0.92%) following the underwhelming release of 1Q US GDP data at +0.2% q-o-q. The bearish USD momentum was however interrupted by the release of FOMC statement, as it emphasized that the weaker 1Q growth was transitory, with the recovery likely to resume at a moderate pace while providing no new insights to the timing of the rate hike. Nonetheless, despite the overall dovish tone from FOMC statement, yields on the mid-to-long end USTs rose by 2-5bps.

¨    Meanwhile, BoT voted 5-2 to cut interest rates by 25bps to 1.50% on the slowing exports and private consumption, supporting a rally in the short to mid tenor ThaiGBs (-1 to -7bps) while sending the USDTHB higher by 0.71% to 32.85; the level nears Thai Finance Ministry’s YE15 target of 33.10. We opine the underperforming export data may keep yields on ThaiGBs subdued. Separately, BI governor has committed to maintain Indonesia’s current account deficit in its 2.5-3.0% to GDP target, as it imposes anti dumping import duties amounting to 15% on steel products amid the supply glut; IDR appreciated by 0.45% overnight, as the USDIDR pair continues to hover below the 13,000 resistance level.

¨    EURUSD climbed towards its 2- month intraday high of 1.1188, spurred by a combination of short squeeze and softer appetite for USD following the release of US 1Q GDP. Subdued CPI and potentially softer jobs data from EU due to be released today may see the EUR pullback as it approaches its strong resistance level at 1.12/USD.