RHB FIC Rates & FX Market Update - 3/7/15

3 July 2015

Rates & FX Market Update

USTs Gained Despite Upbeat Jobs Data; Long-end Bunds Fell on Rising Speculation over Greece’s Acceptance to Austerity

Highlights

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¨    UST gains were supported by speculations of a pushback in Fed’s rate timing, as market digested the implications of stagnant wage growth and declining labour force participation rate amid the impending rate hike; the 2-year UST yield fell 6bps to 0.627%. On a positive note, unemployment rate fell to 5.3%, while the non-farm payrolls remained above the +200K territory in June. Over in UK, GBP remained firm at 1.56 as its construction PMI rebounded strongly to 58.1 in June, indicating resilience to the UK economy. In the Eurozone, long-end Core EGBs fell given heightened speculations that a Greek support for a “yes“ to materialize, backing a path towards more austerity, which may also see Tsipras step down as PM. Over in Australia, AUD saw a slight pullback to 0.7634 as the trade balance remained in deficit at AUD2.75bn in May; expect AUD to test the 0.76 key resistance ahead of the RBA meeting, where we expect the central bank to maintain status quo while attempting to talk down the AUD.   

¨    South Korea’s foreign reserves rose to an all-time high of USD374.75bn partly driven by its large exposure to the modestly firmer EUR; USDKRW continued to rise, favouring our long USDKRW and JPYKRW calls. Separately, THB traded firm despite weaker consumer confidence release in June (63.8) compared with 65 May; where we see confidence to remain vulnerable to Thailand’s stagnant economy due to slow budget disbursements and prolonged period of political uncertainty. Over in Singapore, SGD edged higher against the USD as Singapore PMI showed signaled a faster pace of expansion at 50.4 in June, vis-à-vis 50.2 in May.   

¨    USDKRW pair edged 0.66% higher to 1125 overnight, in reaction to the upbeat US jobs and manufacturing prints in June. We maintain our bearish view on the KRW, as we expect South Korea to remain accommodative on both the fiscal and monetary policy front to support the sluggish economic recovery, further plagued by declining consumer sentiment following the MERS outbreak.