RHB FIC Rates & FX Market Update - 28/7/15

28 July 2015

Rates & FX Market Update

Better US Data Ahead of FOMC Meeting but Ongoing Chinese Concerns to Weigh on Risk Taking

Highlights

¨                   

¨    US kicked off an eventful week with a jump in durable goods orders (3.4% m-o-m vs -2.1% revised in May), driven by an increase in long-lasting manufactured goods and volatile defense and aircraft orders, the first increase since March 2015.  This increase in manufacturing equipment and software suggests a pickup in factory activity ahead. However, the data optimism failed to support the USD where both the DXY and UST yields declined as investors’ pared back optimistic FOMC expectations amid the weaker Chinese sentiment stemming from the Caixin manufacturing PMI print. The high beta AUD is expected to weaken further, weighed by the bearish Chinese developments (SHCOMP sold off -8.5%) and a dovish RBA speech.

¨    USDMYR pushed higher to 3.8200 on continued oil decline and further complicated by month-end flows; USDMYR to remain sticky about its 3.8000 support. Elsewhere, Thailand’s trade surplus narrowed significantly (USD150m vs USD2.41bn in May), impacted by a sharp decline in exports. We opine for marginal downward revisions to exports by Thai MoF today, as officials remain optimistic for a softer THB to boost export demand; maintain mildly bearish THB. The likelihood for further BoT easing would also support ThaiGBs; mild overweight short to belly ThaiGBs. USDINR moved up above 64 on light data flows as locals begin to buy dollars heading into month-end rebalancing; INR to stay relatively shielded compared to regional peers on improving fundamentals, and maintain our neutral call.

¨    The better German IFO Business Climate number (108 vs 107.5 in June) sent the EURUSD marginally higher to 1.1092 amid USD selling. Despite an agreement between Greece and its creditors, we opine that a resolution remains difficult. We maintain our mildly bearish EUR call where the recent uptick highlights opportunities to add shorts against non-USD currencies in the near term.