FW: RHB FIC Rates & FX Market Update - 7/6/18

 

 

 

7 June 2018

 

 

Rates & FX Market Update

 

 

PBoC Strengthened CNY Fixing by Most in 3 Weeks

 

Highlights

 

¨    Global Markets: The EURUSD continued to bounce on renewed expectations that the ECB will stop its Asset Purchase Program this year ahead of next week meeting which also send global yields higher. ECB Chief Economist Praet mentioned that the meeting will be pivotal for the decisions. The EURUSD pair rose close to the 1.18 handle, closing +0.51% higher on the day. The rising May German construction and retail PMI might also have helped the Euro alleviating fears of a protracted slowdown. We remain cautious ahead of the G7 summit, US/North Korea upcoming summit and Fed and ECB meetings.

¨    AxJ Markets: Both the CNY and CNH climbed c.0.3% against the USD overnight, catalysed by PBoC strengthening its CNY fixing by 0.18%, the highest in 3 weeks. The PBoC also offered a net CNY203.5bn via MLF injections, continuing its recent precedence to ease liquidity pressures. We continue to believe that the central bank continues to prioritize macro and currency stability over the near to medium term, with injections and RRR cuts remaining on the table; stay neutral CNY.

¨    The AUDUSD pair climbed c.0.7% overnight after 1Q18 GDP posted a pleasant surprise, with the print coming in at 1.0% q-o-q (consensus: 0.9%), despite earlier concerns over Australian exports. On a y-o-y basis, growth expanded 3.1% y-o-y (consensus: 2.8%), relieving some concerns over tepid wage growth and domestic consumption. Still, we do not expect RBA to jump onto the tightening bandwagon at this juncture, while the currency remains vulnerable to global factors, including the on-going trade war; stay neutral AUD.