FW: RHB FIC Rates & FX Market Update - 29/9/17

 

 

29 September 2017

 

 

Rates & FX Market Update

 

 

Asian Currencies Pressured by USD Strength

 

Highlights

 

¨   Global Markets: Upward dollar momentum faded overnight as investors and various commentaries casted doubts over the feasibility of Trump's proposed tax plans; the downward DXY movement (-0.3% overnight) came despite an upward revision to the 2Q17 GDP print (3.1%; consensus: 3.0%). The 7y UST auction delivered a strong result, stopping through the WI by 1.1bps (HY: 2.130%), amid strong demand from both direct and indirect buyers, with dealers' allocation standing at 10.4% and one of the lowest on record; the strong results were in spite of an imminent Fed's balance sheet tapering in October. We continue to position for a flatter UST curve over the next 4 quarters, with 10y yields likely to be kept below the 2.50% level; maintain a neutral UST duration view. Over in Japan, August headline CPI climbed 0.7% y-o-y, ahead of consensus expectation at 0.6%, although remaining far behind BoJ's persistently unachievable 2% target. BoJ's preferred measure of core inflation rose 0.2% y-o-y (ex-food, ex-energy), despite a relatively sanguine economic outlook still after 6 straight quarters of positive growth, reflecting the difficulty faced by the BoJ in reversing embedded structural deflationary factors. We expect BoJ to maintain its 10y yield target around the 10bps mark, alongside flexibility in its QQE program given mounting supply restrictions; we continue to remain underweight Japanese duration.

¨   AxJ Markets: Over in Indonesia, the USDIDR pair broke above the 13,500 level overnight amid upward USD momentum, reaching the highest level since the beginning of January; the pair subsequently retraced below the 13,500 level this morning. Senior BI officials have been aware of rising USDIDR volatility, and warned that the central bank could intervene to guard against undue currency depreciations; eye the 13,600 level as the next near-term resistance.

¨   USDCNY climbed c.0.3% overnight, extending its gains to almost c.3% since its early-September lows when PBoC relaxed requirements for Yuan trading. While a significant portion of the move can be explained by the resurgent USD strength in recent weeks, the CEFTS CNY basket also fell marginally over the month, as PBoC seeks to limit any rapid CNY appreciation while turning more comfortable with 2-way Yuan movements. We do not expect any significant CNY developments over the coming weeks ahead of the CPC, while only eyeing a very gradual CNY depreciation over the medium term; stay neutral CNY.

 

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