RHB FIC Rates & FX Market Update - 6/5/15

6 May 2015

Rates & FX Market Update

EC Revised Growth Forecast Higher; Yields on ACGBs Rose After RBA’s 25bps Rate Cut; Indonesia’s 1Q15 GDP Disappointed

Highlights

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¨    The selloff in core and peripheral EGBs continued, with yields on 10y EGBs adding another 6-30bps as investors continued to re-price EU risk amid concerns that Greece’s debt crisis may remain unresolved. Meanwhile, EUR inched higher to 1.1187/USD despite the stalemate in Greek bailout talks, as EC revised its Euro-Area 2015 GDP forecast from 1.3% to 1.5%, supported by a weaker EUR and improving outlook aided by ECB’s PSPP. Meanwhile, GBPUSD inched higher ahead of the election polls tomorrow with the tight race likely to result in a hung parliament, where we eye GBPUSD to break the 1.50 support. Elsewhere, yields on USTs added 2-5bps, alongside rising Bund yields, while the outperforming ISM non-manufacturing data buoyed expectations for a strong NFP print due later in the week. In Australia, RBA’s Stevens comment on the improving economic outlook following the 25bps RBA rate cut to 2.0%, dampened hopes of further rate cuts, spurring losses on ACGBs, with yields adding by 9-11bps. While we maintain our mildly bearish view on AUD, we opine for the likely firmer data out of China this week alongside rising UST yields to dull the allure of ACGBs.

¨    In Singapore, April’s manufacturing PMI remained in contraction for the fifth straight month, as further declines in new orders and new export orders were seen, given the weak global demand; SGS traded softer, tracking movements on the USTs while SGD remained sticky at 1.33/USD. Elsewhere, yields on IndoGBs climbed 7-21bps overnight as the sub-5% GDP print in (1Q: 4.71%; 4Q: 5.01%), dampened prior euphoria on Jokowi’s administration; USDIDR ended the trading session convincingly above the 13,000 level. 

¨    AUDUSD surged higher to 0.7943 (+1.37%) following RBA’s 25bps rate cut decision yesterday as RBA governor’s optimism from the improving employment market and household demand gave little indication of further easing bias. This momentum may see the AUD trend higher in the near term.

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