RHB
FIC Rates & FX Market Update - 27/5/15
27 May 2015
Rates & FX Market Update
UST Curve Flatteners to Persist
Through Month-End; Spain and Greek Woes Clouds European Sentiment; Mildly
Bearish JPY on Dovish BoJ
Highlights
¨
¨ Fed
Vice Chairman Fischer’s acknowledgement of a slow pace of FFR hike following a
2015 lift-off and a continued risk-off sentiment from European woes,
including the ongoing Greek deadlock and renewed political jitters, were well
reflected in the bull flattening USTs and Bunds overnight. We expect
the curve flattening trend to persist into month-end and amid a week of short
to belly UST supply (USD90bn). The 2y UST auction (BTC: 3.40x; YTM: 0.648%)
was supported by indirect bidders who raked up 42.3% of the offering. USD
rebounded against most global currencies on the back of strong Durable Goods
Orders and a better than expected inflation report. EUR, JPY and AUD were
notable underperformers, weighed by their weak fundamentals.
¨ IMF’s
removal of undervalued assessment on the CNY suggests a higher likelihood of
the Yuan obtaining its reserve currency status. The CNY was little changed
overnight; we remain cautious against any near term strength given
expectations for a further 50-75bps PBoC rate cut. Meanwhile, the THB
depreciated as customs trade balance swung back to deficit amid poor customs
exports; uncertainty arising from the draft constitution referendum and a
dovish BoT is likely to pressure the USDTHB pair higher in the near term.
In Singapore, the SGDUSD weakened despite May’s firmer IP recorded. We expect MAS
to maintain the SGD NEER at October’s meeting. Elsewhere, the underperformance
in JPY is likely to continue driving bearish sentiment on the KRW in the near
term, as Korean exporters continue to feel the brunt of the all-time low
JPYKRW registered yesterday.
¨ USDJPY
broke its 7y high, to 123.07, driven by the upbeat overnight data out of US
amid a lack of domestic catalysts. In line with expectations, the April 30
minutes is likely to be a non-mover where expectations for further BoJ
stimulus is likely to be supportive of our mildly bearish view on JPY, as
recovery pace remains fairly slow.
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