FW: RHB FIC Rates & FX Market Update - 6/9/17

 

6 September 2017

 

 

Rates & FX Market Update

 

 

Hawkish Comments from RBA's Lowe Spurred Sharp Gains on AUD

 

Highlights

 

¨   Global Markets: Underwhelming factory orders and durable goods orders dampened risk sentiment, driving yields on USTs sharply lower by 5-11bps across the curve yesterday. Additionally, Fed's Brainard caution in raising interest rates again amid the low inflationary pressures resonated with Fed's Kashkari, who raised his concerns that FOMC's previous rate hikes may have dampened job and wage growth. While we expect FOMC to commence the gradual balance sheet normalisation later this month, the recent spate of events including the devastating Hurricane Harvey, upcoming debt ceiling debacle, and ongoing geopolitical crisis could persuade the Central Bank to hold off FFR hikes till next year, underscoring our neutral duration view on USTs.

¨   AxJ Markets: Stronger expansion seen on China's Caixin Services PMI (Aug: 52.7 Jul: 51.5) remained assuring to Chinese authorities, with PBoC keeping a tight rein on the domestic liquidity ahead of CPC National Congress later this year. Yields on CGBs inched higher by 1-2bps across the curve yesterday, keeping 3y CGB yields treading in the upper bound of the 3.40-3.60% trading range over the past week; keep a neutral duration view on CGBs.

¨   The release of RBA's MPC statement was a non-event yesterday with the Central Bank holding rates at 1.5% in line with consensus expectation. However, AUD surged higher towards the 0.80/USD handle towards the end of the trading session yesterday as RBA's Lowe remarked that further rate cuts could add to risk in household balance sheets. Despite so, outperformance on AUD is expected to remain limited, as strength on AUD could weigh on the recovery in economic and labour market outlook, preferring to keep a neutral view on AUD over the medium term.