RHB FIC Rates & FX Market Update - 20/8/15

20 August 2015

Rates & FX Market Update

FOMC Minutes Dampened September LiftOff Speculations; EU Crossed the Greece Debt Hurdle; Declining Likelihood for BoT Rate Cut

Highlights

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¨    The UST curve flattened with the largest yield decline stemming from the belly (-8bps) alongside a weaker USD (DYX -0.70%) after Fed’s July minutes failed to affirm hopefuls gearing towards a September rate hike; Fed futures probabilities for a September hike declined 12% to 36% overnight. While the FOMC noted improvements in its labour market, the sticky low inflation (July: 0.2% y-o-y) and a slowing Chinese economy has both been highlighted as key concerns. Meanwhile, final approval was given for the EUR86bn bailout, with Greece able to receive funds in time to repay the ECB later; gains on EGBs were in line with USTs but the positive Greek development supported modest risk taking.

¨    In Malaysia, July’s CPI climbed higher to 3.3% y-o-y (June: 2.5%), driven by the uptick in food and transport inflation over the festive month. MGS posted firm gains, as investors shrugged off the seasonally higher CPI print, with expectations for BNM to stand pat for the year amid uncertainty in the regional economies. Elsewhere, BoT minutes indicated its status quo decision in August as unanimous, highlighting concerns of a further BoT rate cut inducing further downside risks to financial stability amid elevated external volatility. ThaiGBs remain fairly supported by domestic players; maintain neutral to mild underweight ThaiGB duration with a preference for belly ThaiGBs. Meanwhile, IMF has set September 2016 as the earliest possible date for CNY’s inclusion into the SDR basket following further assessment post PBoC’s CNY devaluation decision this month; maintain mildly bearish on CNY.

¨    EURUSD climbed back above 1.11 (+0.88%) overnight, where the outperformance was driven by stronger sentiment following the final approval of Greek’s EUR86bn bailout and a softer USD post FOMC minutes. EURUSD is likely to remain above its 1.10 support over the near term buoyed by optimism from Greek resolution alongside softer positioning on USD.