RHB FIC Rates FX Market Update 050515

5 May 2015

Rates & FX Market Update

Upbeat US Data; RBA Could Cut Rates 25bps; EUR Eases From Resistance Level

Highlights

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¨    USTs fell following a better than expected factory order print, which may reflect into payrolls data slated for a release on Friday; USD gained against major crosses where an upbeat NFP print. In Europe, EGBs extended losses with belly Bund yields climbing out of negative territory while the 10y Bund closed at 0.452% (+8bps); recent weakness in EGBs is likely to be temporary where we expect ECB’s PSPP to offset some of the weakness over the long term as investors continue to adjust to relatively low yielding govies in the region.

¨    In the UK, yields on Gilts are likely to be volatile in tandem with USTs and election risks where we expect Thursday’s tightly contested elections to contribute to GBP volatility as latest polls show both the Labour and Conservatives party on equal footing. In Australia, short end ACGB yields edged lower ahead of RBA’s meeting later today where we expect a 25bps RBA rate cut to stimulate the stagnating economy; expect a flatter ACGB curve and for the AUDUSD pair to trade within the 0.77 region should a cut materialize.

¨    In Asia, short-dated CGBs rallied further following the contraction in manufacturing PMI data; expect CGB yields to trend lower alongside bearish pressures on CNY as investors expect another PBoC rate cut and more accommodative currency fixing. Short end KTBs gained on a disappointing PMI print partially erasing earlier losses on easing rate cut speculations; KRW remained stable below 1080/USD. In Indonesia, appetite for IndoGBs continue to dwindle on expectations for a weaker GDP print while inflationary pressures intensified in April, on food and transportation prices; expect the USDIDR to trade closer to 13,000 levels.