: RHB FIC Rates & FX Market Update - 1/9/15

1 September 2015

Rates & FX Market Update

Strong Rebound in Oil Supported Higher Yields on USTs; South Korea Posted Weakest Exports in 6 Years; India 2Q GDP Disappointed

Highlights

¨   Yields on USTs rose another 2-5bps overnight, supported by easing concerns over US inflation outlook due to strong upticks in crude oil prices alongside upbeat Fedspeak comments from Jackson Hole Symposium, which placed the September rate hike back on the table; expect another strong NFP print due Friday to underscore expectations towards Fed’s September tightening (40.0% probability). Yields on 10y EGBs climbed 4-6bps overnight as inflation expectations were lifted by the oil price rebound alongside better Eurozone CPI estimates, despite dovish comments from ECB’s Constancio; maintain tactically neutral on EUR amid uncertainty over China and FFR trajectory.

¨   South Korean exports for August posted its sharpest drop in 6 years (-14.7% y-o-y vs July: -3.4%), bolstering expectations for further BoK easing as downside risk from China continues to compound on the export dependent economy; maintain our preference for short to belly KTBs and bearish on KRW, which may re-test its 2010 highs against the USD.  Turning to Thailand, the ThaiGB curve bull steepened on weak July’s business sentiment and exports; maintain neutral to mild underweight ThaiGB duration on top of softer trading expected on the THB, exacerbated by domestic economic and political concerns. Softer Indian 2Q GDP print (2Q: 7.0%; 1Q: 7.5%) supported a weaker INR overnight to c.66.5/USD (+0.48%) despite softer USD movements. Slower growth and benign inflation should stay supportive for further RBI easing; underpinning our mild overweight view on GolSecs.

¨   AUD inched lower to 0.7112/USD ahead of RBA meeting later today, as China growth concerns and tepid commodity price movements continued to weigh on AUD’s strength. While expectations remain for RBA to stand pat today, we eye signs for RBA’s increasing inclination towards further easing amid the various downside risks, which should remain supportive of our mildly bearish call on AUD.