FX
Global
The FOMC left
the target federal fund rate unchanged at 0-0.25% and Iift-off is still
conditioned on further improvement in the labour market. 2015 GDP forecast was
revised lower to 1.8-2% from 2.3-2.7% back in Mar FOMC for the second time in a
row; Year-end unemployment rate was raised to 5.2-5.3% (vs. 5-5.2% in Mar
FOMC). Most importantly, FOMC member projection for interest rates (dots
projection) turned out to be more dovish than expected – median rate projection
for end 2016 and 2017 have been revised down by 25bps to 1.625% and 2.875%,
respectively. For end 2015, projection remains for two 25bps hike this year.
DXY slipped towards the 94-figure and was still hovering a tad above the mark
in early Asia.
Markets
perceived the statement to be a tad dovish and stocks took comfort in the
forward guidance with DJI, S&P and NASDAQ up +0.2% each for the night.
Gains in the UST 10-year yields were reversed out sharply. NZD took the
limelight away from the dollar after 1Q GDP undershot expectations with a print
of 0.2%q/q. Year-on-year, the economy grew 2.6%, well under the consensus of
3.1%. The NZD sank 1.3% against the USD, slipping under the 0.69-handle.
AUD/NZD extended its recent rally to levels around 1.12.
The Asian
calendar gets a bit busier today with property data due out of China followed
by Bank Indonesia’s rate decision later. We do not expect the central bank to
move given rising inflation, concerns on capital outflows and more time needed
to monitor impact of macroprudential policies. Beyond Asia, Euro-are Finance
Ministers meet in Luxembourg today and eyes will be on any hint of a deal with
Greece. Greek Finance Chief Yanis Varoufakis assured that Greece aims to remain
in Euro. Elsewhere, US releases CPI data along with initial jobless claims and
Philly Fed index.
Currencies
DXY – Dovish-Tilt. Fed’s Yellen acknowledged the recent improvement in economic data;
continues to reiterate that inflation is running below the FOMC’s longer-run
objective of 2%. This reinforced the point that 1Q data weakness was
transitory. The above were as expected. The surprises were 1)the decision to
lower the 2015 GDP forecast (to 1.8-2% from 2.3-2.7% back in Mar FOMC) for the
second time in a row; 2) raised the year-end unemployment rate to 5.2-5.3% (vs.
5-5.2% in Mar FOMC); 3) most importantly, FOMC member projection for interest
rates (dots projection) turned out to be more dovish than expected – median
rate projection for end 2016 and 2017 have been revised down by 25bps to 1.625%
and 2.875%, respectively. For end 2015, projection remains for two 25bps hike
this year. At the press conference when asked whether if a rate hike is
expected this year, Yellen replied that no decision has been made about the
timing of an increase, remains data-dependent, and reiterated that Fed
“absolutely” do not expect to follow any mechanical 25bps a meeting, 25bps
every other meeting. This is consistent with our expectation for a more
gradual pace of tightening with a 25bps hike followed by a pause within the
quarter to assess the
impact. The latest FOMC statement remains consistent with our house view for a
potential rate hike as early as in Sep. DXY
fell towards 94.13 lows this morning, following the dovish-tilt FOMC overnight.
Daily momentum is mild bearish bias. We reiterate that caution is on the downside - a daily close below 94
could well suggest further downside pressure on the DXY towards 93.15 levels.
Week ahead brings May CPI; initial jobless claims, continuing claims; 1Q
current account; Jun Philly Fed; May leading index (Thu).
EUR/USD – Upside Bias. Euro rose amid inflation data in line with
expectation amid USD weakness following dovish-tilt FOMC. Pair rose as high as
1.1370 this morning somewhat ignoring the Greek uncertainty. Daily momentum is
mild bullish; expect the pair to continue to trade with an upside bias;
next objective at 1.1467 while support at 1.1310. Greek headlines will continue
to drive sentiment. Week ahead brings GE May PPI; 1Q FR Wages (Thu); EC Apr
current account (Fri); Euro-area Finance ministers meeting over Thu-Fri could
stretch into the weekend on unconfirmed market talks after PM Tsipras was said
to have met Russian PM Putin last Sun.
GBP/USD – Objective at 1.5815 Met. GBP continues its march higher clearing above key
resistance at 1.5660, hitting our objective at 1.5815 on better than expected
weekly earnings. The BoE warned that rising global rates could impact the UK
and a domestic rate move was contigent on UK inflation. Medium term, the
bullish momentum remains intact; next leg higher could see 1.5970 levels;
interim support now at 1.5660. We remain better buyers on dips.
Week ahead brings May retail sales (Thu).
USD/JPY – USD/JPY – Two-Way Trades. USDJPY broke above the 124-handle overnight but
retraced completely to an overnight low of 123.21, underpinned by FOMC
statement and Yellen’s comments. Since then, pair has edged higher towards
123.50 on the back of JPY selling against the EUR and GBP. BOJ Governor Kuroda’s
comments on 10 Jun should continue to keep a lid on price action. Markets
remains tentative ahead of BOJ policy decision on Fri, though our long-standing
view remains for BoJ to ease in Oct 2015. A daily close below support at 122.54
(76.4% Fibonacci retracement of 121.52 – 125.86) could see the pair re-visit
next support at 121.50–121.85 levels (previous resistance before the break-out
that happened in May 2015). Intraday MACD remains mildly bullish, though
stochastics is bearish bias. Topside remains capped by the 125-figure.
Remain better buyers on dips.
AUD/USD – Tug-of-War. AUD touched a low 0.7646 on Wed before the FOMC statement lifted the
AUD/USD pairing above to mid-0.77 again. Pair remains on the downside bias this
morning, dragged a tad by the NZD sell-off post GDP. The recent price action
has bears gaining momentum again but it is still a tug of war with bulls. There
is hardly any bias on the momentum charts. The 100-DMA still caps action at
0.7776. Expect two-way action within 0.7650-0.7770. Beyond the near-term, a
clearance of the 0.78-figure could be a double confirmation of the double
bottom pattern formed in the past two weeks. Westpac leading index slipped
-0.1%m/m in May.
USD/CAD – Bears Gaining Momentum. USDCAD slid towards the lower bound of the daily
ichimoku cloud, broken below the 50-DMA at 1.2250. Pair was last priced around
the 1.2230. Momentum indicators showing bearish bias and we look for a break of
the 1.2160-mark for more downside extension towards the 1.20-figure. The 50-DMA
has become a resistance here, coinciding with the kijun sen (base line) of the
daily ichimoku indiator. Data calendar is light today with May CPI and Apr
retail sales due tomorrow (Fri).
NZD/USD – Downside Pressure Persists. NZD had a choppy session overnight - initially
rallied post FOMC towards near-0.70 handle but the rally was short-lived as NZ
1Q GDP came in much weaker than expected. This sent NZD below the 0.69-handle;
low of 0.6881 was traded this morning. Support at 0.6950 has now broken; next
objective at 0.6870. Momentum and stochastics continue to indicate a mild
bearish bias. We continue to reiterate our view for further downside pressure
on the NZD on a combination of drivers including further expectation of RBNZ
cutting rates again in Jul on weak dairy prices, falling PPI amid weakening
demand. We expect at least another 25bps cut and the next cut could come as
soon as the next meeting in Jul.
Asia ex Japan Currencies
The SGD NEER trades 0.25% above the implied mid-point of 1.3490. We
estimate the top end at 1.3222 and the floor at 1.3759.
USD/SGD – Buy on Dips. USDSGD is trading higher this morning on the back of
softer EUR and JPY after sliding to an overnight low of 1.3420. Pair though
continues to trade within its current 1.3400-1.3480 range. We continue to
reiterate that the pair needs to make a daily close above the neckline at
1.3550 (50% fibo of 1.3941 - 1.3151) for further rally towards 1.3640 (61.8%
fibo); 1.3750 (76.4% fibo). Intraday MACD is showing tentative signs of bearish
momentum, while stochastics is fast approaching oversold levels. Support at
1.34 should hold. While the pair is likely to consolidate in 1.34 - 1.36 range,
we favour buying the pair on dips. May's NODX fell marginally by 0.2% y/y,
though worse than the 2.3% market was expecting, dragged lower by
pharmaceuticals and electronics shipments (-0.7% and -2.5% y/y respectively).
The weak NODX print probably helped to keep the pair supported this morning.
AUD/SGD – Testing the 50-DMA. AUD/SGD is still capped by the 50-DMA, last seen
around 1.0400. Despite the current downtick, we think downsides are unlikely to
be sustained as efforts of AUD bears could be negated to some effect by SGD
weakness. Still, strong resistance is seen at 1.0475, the 50-DMA. The ichimoku
cloud turned higher, possibly allowing more room for upsides. Support is marked
at 1.0330. Daily momentum indicators suggest waning bearish momentum and bias
to the upside. That said, choppy action should continue to remain within
1.0300-1.0520.
SGD/MYR – Lacklustre Range. SGDMYR consolidated in 2.78 – 2.79 range overnight;
traded 2.7840 levels this morning. Weekly MACD and stochastics remain bullish
bias. SGDMYR could still face further upside risk, possibly towards 2.80-2.82.
Day ahead still see 2.7750 – 2.7900 range in absence of fresh catalyst and into
US FOMC.
USD/MYR – Consolidate. USDMYR continued to ease despite stronger USD and
softer oil prices overnight; lows of 3.7360 was traded this morning. Daily
stochastics is showing tentative signs of turning lower from overbought – could
suggest near term mild pressure to the downside. Day ahead expect pair to
consolidate in 3.73 – 3.76 range. We continue to caution that pair could
remain supported on concerns at home, with a risk of overshoot towards 3.80.
Focus on Fitch review of the country’s sovereign rating likely to be due
sometime between now and end-Jun. Malaysia CPI is on tap later today. We expect
headline inflation to pick up on transportation and food prices; expect inflation
to stay firm due to upcoming Ramadan.
USD/CNH – Firmer
In Range. USD/CNH slipped back to print 6.2097 and gap between the CNH
and CNY narrowed, though support is still seen at 6.2067 (50% Fibonacci
retracement of the 2014-2015 rally). That still leaves the pair in rangy
trades. We noticed reluctance by PBOC to fix the pair much higher against the
dollar, underscoring our view that the central bank wants to ensure a steady
yuan. Pair is still within the broader consolidative 6.1842-6.2292 range. A breakout
is needed for more directional cues at this point. We still await the
completion of the head and shoulders pattern and the clearance of the neckline
around the 6.19-figure, which is near to the 200-DMA at 6.1924. On 16 Jun,
USD/CNY was fixed 14 pips lower at 6.1155 (vs. previous 6.1169). CNYMYR was
fixed 14 pips lower at 0.6055 (vs. 0.6069). PBOC allows private investment
funds to enter interbank bond markets (Reuters).
USD/INR – Mounting Upside Pressure. USD/INR bounced yesterday and closed near day’s high
at 64.2525, underpinned by bad trade numbers. Pair is at the brink of breaking
out of the ascending triangle set up after touching a high of 64.30. MACD tilts
to the upside. 1-month NDF is less convincing as the pair slipped from
overnight highs to levels around 64.55. We need a breakout of the 63.835-64.890
range for stronger directional cues. Trade data shows further deterioration in
May with exports falling another 20.2%y/y accompanied by a 16.5% fall in
imports. Trade deficit narrowed to USD10.4bn. In news, ADB President
expressed confidence in the fiscal position of India and support rail reform
measures. The bank will increase lending to India by 50% in next three years.
USD/KRW – Range.
USDKRW traded higher towards 1118.5 levels yesterday. Pair opened near
1119 levels this morning before trading marginally softer towards 1117.5 at
time of writing. Expectation of supplementary budget to offset negative impact
from the MERS scare is building; expect a decision to be made by end-Jun.
Budget amount is likely to be KRW20 – 25tn range in order for it to be
meaningful and to complement accommodative monetary policy. Day ahead,
while 4-hourly stochastics is falling, momentum remains flat. Pair could trade
range between 1112 – 1119 in absence of fresh catalyst. We continue to
reiterate our medium term bearish view for KRW - on concerns over
MERS weigh on growth/domestic consumption/ tourism/ foreign investment against
a backdrop of subdued inflation, weak activity data, soft exports, weak JPY
undercut Korea’s export competitiveness, and rising household debt (165% of
annual household disposable income). USD strength on Fed rate lift-off in Sep
(house view) could further provide support for the pair.
USD/IDR – Range. USD/IDR is edging higher this morning but well-within its current
trading range of 13285-13370. Intraday MACD is showing no strong momentum,
while stochastics is at overbought levels, suggesting range-bound trades are
likely intraday. Any dips ahead should be opportunities to accumulate. Expect
the pair to consolidate within 13250-13400 intraday as markets await both FOMC
and BI policy decisions this Thu (we expect BI to stand pat given rising
inflation, concerns on capital outflows and more time needed to monitor impact
of macroprudential policies). 1-month NDF remain steady around the
13,440-region with little momentum seen on either side though price action is
still on the uptrend. The JISDOR was left unchanged at 13,333 yesterday.
Foreign funds bought a net USD15.00mn in equities yesterday, but removed a net
IDR1.46tn from their outstanding holding of government debt on 15 Jun (latest
data available).
USD/PHP – Bearish Bias. USD/PHP is inching lower back towards the 45-handle
this morning, playing catch-up with its regional peers. Both intraday MACD and
stochastics are bearish bias, suggesting that the 45-handle could be tested
today. A break of that support-level could see the pair headed toward 44.890
and then to 44.715. Resistance is seen around 45.410 for now. 1-month NDF is
coming off back to the 45.200-levels this morning after heading higher towards
45.70 on Mon and could continue its gradual grind lower given that intraday
MACD is showing bearish momentum, though stochastics remained at oversold
levels. Foreign funds continued their equity selling spree with a net USD1.37mn
sold yesterday, though it appears that the selling is tapering off and the let
up could be supportive of the PHP.
USD/THB – Rangy. USD/THB continues to trade within its current 33.615-33.810 range
in the absence of fresh catalyst. Currently hovering around 33.680-region, pair
is showing little directional momentum, suggesting continued range-bound trades
are a possibility ahead. Pair should continue to track dollar moves ahead,
given the lack of domestic impetus. Ahead of FOMC decision tomorrow, pair
should trade rangy within 33.615-33.810 intraday. Foreign funds were net
sellers of Thai assets yesterday with a net THB0.84bn and THB0.10bn in equities
and government debt sold off and further selling should keep the pair
supported.
Rates
Malaysia
§ Buying was seen on local government bonds from the
front end to the belly of the curve with volume picking up. Notably, MGS 3/17 and
benchmark MGS 10/17 each reported more than MYR1.0b trades done. The 7y and 10y
MGS benchmarks rallied as well, lower by 5-7bps on the back of flow buying. All
eyes on the FOMC outcome and today’s 7y retap MGS 9/22 auction.
§ IRS curve saw some downward pressure in combination
with the foreign buying in govvies. 5y and 7y IRS traded at 3.965% and 4.145%
respectively. We think rates may go higher and receiving interest in local IRS
may persist. 3M KLIBOR remained at 3.69%.
§ PDS market came back to life with the rally in
govvies. Bid-offer spreads tighter than levels seen in the past 2 weeks. The
newly issued JKSB 25s tightened 8bps to 4.34% as nothing was dealt at the 4.33%
quote. For AAAs, Aman 5/24s tightened 2bps from previous close to 4.40% and
demand was still focused on the belly of the curve. AA names traded 2bps
tighter with Northport, UEM and Malakoff seeing trades. We think investors are
still awaiting the FOMC outcome but it is good to see liquidity return in the
HG space.
Singapore
§ SGS yield curve was relatively unchanged though the 5y
and longer end bonds rose slightly by about 1bp. This strays from the movement
in UST which gained amid concerns on Greece and the FOMC meeting.
§ Asian credit space was quiet, not surprisingly. It
feels like the calm before the storm where players are either trying to lighten
up their positions or just stay sidelined for the time being. While most are
expecting a rate hike to only come in September, market is keeping a close eye
on the tone of the FOMC meeting as well as on the progress of the Greece
situation. PHILLIP and INDON sovereigns recouped some losses after weeks of
selloff. Some buying was seen in Chinese IG short dated papers and Korean
names. We remain cautious and suggest to stay light while waiting for more
direction.
Indonesia
§ Indonesia bond market closed slightly higher
yesterday. Our economist expects that Bank Indonesia would maintain its
reference rate at 7.50% today in line with Bank Indonesia statement that they
would not use interest rate to boost growth. There were minimum market
sentiments during the day ahead of FOMC meeting. 5-yr, 15-yr, 10-yr, 15-yr and
20-yr benchmark series yield stood at 8.504%, 8.579%, 8.740% and 8.740% while 2y yield shifts down to 8.028%. Trading volume
at secondary market was seen thin at government segments amounting Rp8,358 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,458 tn with 91x transaction frequency and closed at 98.739 yielding 8.579%.
§ Corporate bond trading traded moderate amounting Rp662
bn. BNLI01BCN1 (Shelf registration I Bank Permata Phase I Year 2013;
B serial bond; Rating: idAAA) was the top actively traded corporate
bond with total trading volume amounted Rp102 bn yielding 9.383%
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