RHB FIC Rates & FX Market Update - 8/4/2015

8 April 2015

Rates & FX Market Update

USD Retraced Losses on Mild Risk Aversion Ahead of FOMC Minutes; RBA and RBI Held Rates Unchanged Amid Accommodative Tilt

Highlights

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¨    USD recouped post NFP losses with some signs of mild risk aversion ahead of FOMC minutes due later today. On the same footing, short-end UST closed a touch softer where the fair 3y new issuance (BTC: 3.25x) printed at 0.865%, the lowest since March 2014 and below its WI of 0.87%. Nonetheless, short-dated UST yields continued to retrace lower post auction, evident of some duration clipping resulting from a delay in Fed’s tightening expectations. Meanwhile, AUD staged a rebound to an intraweek high of 0.7710/USD following RBA’s decision to hold rates at 2.25%. Nonetheless, we expect RBA to maintain its accommodative stance given its sub-par growth trend which should favour our short AUDUSD call; maintain mild overweight ACGBs. Else, IMF cautioned on the slowing potential global growth, urging nations to boost investment and suggested a slower global transition towards tighter monetary policy.

¨    In Asia, RBI held rates at 7.50% but maintained an easing policy stance as CPI remains below its 6% target. In addition, RBI’s Rajan raised prospects of allowing Indian companies to issue offshore INR bonds which could shift FX risk dynamics from the bond issuer to investors. In China, PBoC Yuan fixings climbed to its 1m high but CNY remained stable at 6.1981/USD; IMF’s pending approval to include CNY in the SDR and PBoC’s pledge to a prudent monetary policy is likely to keep CNY subdued at 6.20/USD. Else, Malaysia’s foreign reserves declined to USD105.1bn (8.1m of retained imports), attributable to revaluation losses given MYR’s weakness; USDMYR hung above its 3.63 support, with technicals pointing to a consolidation phase between 3.63-3.72.

¨    GBP tested 1.49/USD resistance following the stronger PMI services data, echoing last week’s strength in manufacturing PMI. While growth expectations remains upbeat, we opine that the added volatility amid the political uncertainty ahead UK elections on 7^th May is expected to exert downward pressure on the GBP, alongside a dovish-tilted BoE.