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FX
Global
Market players took profit on recent equity gains as IMF Chief Lagarde reminded that global economic recovery is still “too slow” and “too fragile”, citing China slowdown and muted pace of activity in developing economies. Crude prices had been heavy before making some gains into the last few hours of NY trade. Even so, MYR trades slightly weaker this morning along with KRW and JPY.
USDJPY had touched 109.95 – 17 month low before rebounding just above the 110.40-level as we write this morning. RBA did not move as expected though the central bank acknowledged that a higher exchange rate could hamper the economic rebalancing process. The AUD bounced after the decision before slipping below the 0.76-figure as risk appetite wanes. A deeper retracement towards the 0.7430-level should not be ruled out.
RBI cut repo rates by 25bps to 6.5% and narrowed the interest rate corridor to +/-50bps around the repo rate by hiking reverse repo by 25bps to 6.0% and lowering MSF by 75bps to 7.0%. RBI Governor Rajan stressed that the focus is on the pace of rate cut transmission. Core inflation has remained “sticky” though weak crude prices aid in disinflation process. The central bank is still open to further easing. USDINR bounced after the decision and remained elevated for the remaining of the session.
The day ahead is light in terms of data with only FOMC Minutes of note tonight. We hold our view that there is unlikely to be fresh cues from this release especially after Fed Yellen has spoken her mind last week. Eyes are on her again this Friday. In the meantime, cautious mood continues to underpin USDAXJs.
Currencies
G7 Currencies
DXY – FOMC Minutes Tonight. USD remained mixed overnight – softer against JPY, little changed vs. EUR but slightly firmer against most AXJs. US equities were generally weaker despite better than expected ISM non-mfg and PMI services data. FOMC minutes due for release tonight – could offer further insights into what other FOMC speakers spoke about but overall not expecting much surprises as FOMC members have gone on the wires to “air their views” post-FOMC meeting in Mar. On technical, momentum remains bearish but MACD suggests some signs of bullish divergence. Retracement could re-visit 21DMA (now at 95.60). Further extension could see a move towards 96.45 (50% fibo retracement of the decline from Mar high to low). Support at 94.30 levels before 92.50. Week ahead brings Mar MBA mortgage applications and US FOMC Minutes for Mar on Wed; initial jobless claims on Thu before wholesale inventories for Feb are out on Fri. Fed Chair Yellen is due to speak again on Fri, with Greenspan, Bernanke and Volker. That is likely to be closely watched to see if there is any revision to her views after the decent jobs report.
EURUSD – Potential Pullback towards 1.1250. EUR traded lower towards 1.1340 amid brief USD strength and brief sell-off in oil but losses were retraced and the pair closed little changed from where it opened. Last seen at 1.1385 levels. Bullish momentum on daily chart shows signs of waning and stochastics are showing signs of falling from overbought conditions. Potential pullback towards 1.1220 – 1.1250 levels (21 DMA) cannot be ruled out. Bias to buy on dips, targeting a move towards 1.15, 1.18. Week ahead Germany’s industrial production on Wed; France industrial production for Feb on Fri.
GBPUSD – Sell on Rally. GBP was a touch softer, despite better than expected services/composite PMI data overnight. Last seen around 1.4160 levels. We reiterate that Brexit concerns should cap any excessive rise. Retain our bias to sell GBP on rally ahead of Referendum (23 Jun). The weekly and daily charts indicate little momentum on either side and we envisage two-way trades within the 1.4030 (23.6% fibo retracement of 2016 high to low) - 1.4350 (61.8% fibo) range. Week ahead brings Halifax house price for Mar on Thu before Feb industrial production, manufacturing production and trade balance on Fri.
USDJPY – Mild Upticks. USDJPY briefly touched a new low for 2016 not seen since Oct 2014 at 109.95 on the back of risk-off sentiments on global growth concerns. The drop in the pair prompted speculation of possible intervention should the pair fall further pass the 110-levels. The pair has since rebounded on possible short-covering and mild resurgence in the dollar. The pair was also supported by the sell-off of the JPY against the majors. The recovery in the Nikkei future is also likely to be supportive of the pair. Still, there are increasing concernsthat the failure to reflate the economy could pose increasing risk to the future of Abenomics, which, if it happens, could trigger not only a collapse in confidence but also a sell-off in the Nikkei and force large unwinds of JPY-hedges and risk USDJPY falling further. Last seen around 110.50, pair is now exhibiting bearish momentum and stochastics is turning lower. Weekly charts are still bearish bias. With the 111-levels (triple bottom formed in 2016) taken out, new support is now seen around 110-levels (5 Apr low); 108-levels (2 & 29 Oct 2014 lows). Resistance is around 113.40 (yesterday’s high). Remaining week has Feb current account on Fri.
NZDUSD – Range-Bound. NZD rebounded tracking the rebound in dairy prices (+2.1% from previous) following GDT auction overnight. Pair was last at 0.6805 levels. Pair remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.70 (upper bound). Momentum and stochastics are indicating a mild bearish bias. Next level to watch on the downside at 0.6760 (21 DMA) before 0.6680 (100 DMA, lower bound of the trend channel). Week remaining brings REINZ house sales for Mar could be released anytime from Fri onwards.
AUDUSD – Largely Ignored RBA. The pair was nudged higher after the RBA decision before towards mid-0.75 by early Asia. Deeper retracements are possible and we see support at 0.7496 (61.8% fibonaccci retracement of the May-Jan sell-off) before the next at 0.7430. RBA kept a rather neutral tone in its latest and only made reference to the exchange rate by acknowledging that a higher AUD could hamper the economic rebalancing process. Amid low inflation trajectory, the central bank “judged that there were reasonable prospects for continued growth in the economy” and kept rates unchanged at 2.0%. We had guessed as much as there had been no indications of serious deterioration in the economy that could prompt the next cut. Beyond the near-term, interim resistance at 0.7723 (recent high) before the next at 0.7850 (76.4% Fibonacci retracement of the May-Jan sell off).
USDCAD – Bulls Bidding Time. USDCAD touched a high of 1.3219 before retreating to levels around 1.3135 as we write. Momentum and stochastics are mild bullish. We still prefer tactical long towards the 1.33-figure (near 200-DMA) before the 1.3460 (last Oct high) which could potentially form a head and shoulders formation. Housing starts for Mar and labour report for Mar are due on Fri.
Asia ex Japan Currencies
The SGD NEER trades 0.02% above the implied mid-point of 1.3558. We estimate the top end at 1.3287 and the floor at 1.3829.
USDSGD – Rangy. USDSGD climbed to towards the 1.3600-handle stalled with the pair sliding back mildly towards the mid-1.35 levels this morning. Pair was last seen around 1.3550 levels. Daily momentum and stochastics are now turning higher. The death cross where 50DMA cuts 200 DMA on the downside, typically signalling bearishness, could still be playing out. We need to see a clean break of the 1.34-handle for a move towards the 1.31-handle. For now, rangy trades within 1.3415 (year’s low)-1.3660 (23.6% Fibo retracement of the Jan-Mar downswing). Remaining week has Mar foreign reserves (Thu) and advanced estimates for 1Q GDP and MAS meeting are due sometime 7-14 Apr. S&P reaffirmed Singapore’s sovereign rating of ‘AAA/A-1+’ with a stable outlook reflecting expectations of economic resilience, fiscal flexibility, and strong net external creditor position over the next two years.
AUDSGD – Not Moving. AUDSGD broke below the 1.0250-support (23.6% fibo retracement of Feb low to Mar high) and was last seen around 1.0220. We do not rule out deeper retracements towards next support at 1.0170 (38.2% fibo). These are taken as shallow retracements before our ultimate target at 1.0540 to be reached.
SGDMYR – Remains Cautious of Short Squeeze. SGDMYR rebounded off its 7-month lows. Last seen around 2.8940 levels. We observed a dragonfly doji seen on Monday’s candlestick. This is typically a bullish formation. Daily momentum remains bearish but stochastics is showing signs of rising from oversold conditions. We caution that the pair could see a retracement towards 2.9140 (23.6% fibo retracement of 2016 high to low), 2.95 (50% fibo, 21 DMA).
USDMYR –Interim Upside Risk. USDMYR inched higher amid soft oil price, slightly softer risk sentiment and mild USD strength (against AXJs). Pair was last seen at 3.9230 levels. We reiterate a hammer candlestick formed on Mon. This is typically a bullish reversal. While momentum remains bearish bias, it is showing signs of waning and stochastics is also showing signs of rising from oversold conditions. Retracement could revisit 3.9520 (23.6% fibo retracement of Feb-high to Apr low), before 4.0000 (38.2% fibo), 4.0550 (50% fibo). We remain bearish bias in the medium term but caution for short squeeze. Week remaining brings Feb trade (Wed); 31 Mar foreign reserves (Thu).
1s USDKRW NDF – More Upside to Come. 1s USDKRW NDF continued to trade higher amid cautious risk sentiment and mild USD strength against AXJs and commodity-linked currencies. Pair was last at 1158 levels. There was a dragonfly doji candlestick formed last Thu. And that signals a turning point (to the upside). Subsequent price action has confirmed the move higher. Daily momentum has turned bullish and stochastics is rising from oversold levels. Further upside could come. Next resistance at 1168 (61.8% Fibo retracement of Oct low to Feb high). Support at 1150 (76.4% fibo) before 1136 (previous low).
USDCNH – Range Action. The pair has been sticky around 6.4820. We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. For now, the 98-level holds as a floor for the RMB index, tested twice in the past month and held. According to our RMB index estimate, the last fixing place the RMB index at 98.08 today. With mild bullish divergence shown on the dollar chart, gains in the greenback may not translate into much gains for the USDCNY because CNY needs to retain a certain amount of strength against the basket of trading partners. We continue to expect USDCNH to remain within the 6.4200-6.5200 range. USD/CNY was fixed 91 pips higher at 6.4754 (vs. previous 6.4663). CNY/MYR was fixed 8 pips higher at 0.6034 (vs. previous 0.6026). The week ahead has Caixin services PMI for Mar and FX Reserves. In the news at home, Former PBOC adviser Yu Yong ding urged for another round of infrastructure investment to boost aggregate demand (China Securities Journal).
SGDCNY – Upside Bias. This cross gapped down and closed slightly lower at 4.7734. Uptrend is still intact though bullish momentum is waning. Ahead of the MAS monetary policy decision next week, we anticipate some retracements towards the 4.7400-level.
1s USDINR NDF – Retracements. Pair rallied after RBI decided to cut repo rates by 25bps to 6.50% and 1M NDF was last seen around 66.70. %. The central bank also narrowed the policy rate corridor by 50bps to +/-50bps around the repo rate and lowered the minimum daily requirement of the 4% cash reserve ratio from 95% to 90%. MACD forest is near zero on the daily chart at this point and there are some signs of bullish divergence. Retracements towards the 67-figure could be unfolding. At this point, the 100-DMA at 67.50 seems to have deterred aggressive bulls. Weekly momentum is still bearish. The 200-DMA at 66.20 is a key support for this pair. Week ahead has trade for Mar, due anytime from Fri onwards. Risk appetite was good on 4 Apr with foreign investors buying USD61.2mn of equities and USD64.8mn of debt. The post meeting press conference saw RBI Governor Rajan stress on the pace of rate cut transmission. Core inflation has remained “sticky” though weak crude prices aid in disinflation process. The central bank is still open to further easing. USDINR bounced after the decision and remained elevated for the remaining of the session.
USDIDR – Capped. USDIDR is on the mild uptick this morning on the back of risk-off sentiments. Pair was last seen around 13288 with daily charts still showing waning bullish momentum and stochastics bearish bias. This suggests that further upside moves could be capped ahead. Resistance around 13315 (31 Mar high); 13350 (50DMA). Support remains around the 13000-handle. The JISDOR was fixed higher at 13217 on Tue from Mon’s 13145. Risks sentiments remained positive yesterday with foreign funds buying a net USD27.60mn in equities. They had also added a net IDR2.94tn to their outstanding holding of government debt on 4 Apr (latest data available).
USDPHP – Gapping Higher. USDPHP gapped slightly higher on the opening to 46.300 this morning on risk-off sentiments. Pair is little changed currently. Daily momentum is showing mild bullish bias and stochastics climbing higher. Further upticks should meet resistance around 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support remains around this year’s low of 45.900. Risk appetite remained weak yesterday with foreign investors selling a net USD8.8mn of equities yesterday.
USDTHB – Out For Holiday; Rangy. Onshore markets are closed today for a public holiday and re-opens tomorrow. USDTHB climbed to a high of 35.393 before retreating to around the 35.290-levels this morning. Quiet trades are likely with the pair currently hovering around 35.290-levels. Expect range-bound trades within 35.120-35.370 intraday. Sentiments soured yesterday with foreign funds selling a net THB1.74bn and THB4.63bn in equities and government debt. Remaining week has 1 Apr foreign reserves on Fri.
Rates
Malaysia
§ Govvies ended mixed, with those at the very long end of the curve continuing to see good interest from real money accounts. Given current MYR levels and positive risk sentiment globally, we believe the current momentum will be supported in the near term. Upcoming auction is the reopening of 7y MGII 7/23 at an estimated size of MYR3b.
§ MYR IRS saw firmer bidding, with levels ending 1-2bps higher. However, nothing was dealt in the market. 3M KLIBOR was unchanged at 3.71%.
§ Quiet day for PDS market. GG belly papers widened slightly, except for PTPTN 26 which tightened 1bp to 4.42% (G+47bps/Z+36bps). The AAA space was focused on Putrajaya’s new issuance – MYR55m 6y sukuk at 4.20%, MYR250m 8y sukuk at 4.35% and MYR230m 9y sukuk at 4.40%. The final prices look fair and may tighten if rates go lower. Elsewhere in the space, Plus 32 tightened 2bps to 4.78% (G+65bps/Z+50bps) and Rantau 31 tightened 3bps to 4.75% (G+65bps/Z+50bps), both seem to be good offers. We think AAA names could trade better in secondary market in the near term.
Singapore
§ The higher USDSGD and biddish short-dated forwards pushed SGD IRS rates up with the curve bear flattening. Rates +3bps at the front end, while the long end stayed flat. SGS saw a similar theme, with yields 2-3bps higher at the short end and +1bp/unchanged at the long end, underperforming UST and SGD IRS.
§ Asian credit market was bullish in the morning, but gave back most of the gains in the afternoon. The sovereign cash space saw INDON 25 up 25cents and PHILIP 41 up 1pt before both drifted back down. Oil names widened 2-4bps on subsided short covering and profit taking by RM. Overall, market widened about 2bps on average. Primary space saw some new unrated issuances, from Temasek-linked company, luring AA investors. Mizuho TLAC should do well if its past 2 TLAC issuances are any indication.
Indonesia
§ Indonesia bond market closed lower for the second day of the week as market sentiment were minimum while the sukuk bond auction received better incoming bids. Selling activities were seen during the day contributed mainly by local clients however on the other hand, foreign clients were seen absorbing. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.325%, 7.601%, 7.957% and 7.962% while 2y yield shifts down to 7.468%. Trading volume at secondary market was seen moderate at government segments amounting Rp10,099 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp1,331 bn with 20x transaction frequency and closed at 103.854 yielding 7.716%.
§ Indonesian government conducted their Sukuk auctions yesterday and received incoming bids of Rp13.25 tn bids versus its target issuance of Rp4.00 tn or oversubscribed by 3.3x. Incoming bids during the auction was lower by approx. 22% compared to the last sukuk auction last two weeks. The incoming bids were higher compared to the YTD average incoming bids during sukuk auction amounting Rp11.41 tn. However, DMO only awarded Rp5.79 tn bids for its 5mo, 2y, 5y, 7y and 16y bonds. Incoming bids were mostly clustered on the PBS009 series. 5mo SPN was sold at a weighted average yield (WAY) of 5.62500%, 2y PBS009 was sold at 7.51649%, 5y PBS006 was sold at 7.74996%, 7y PBS011 was sold at 8.00000% while 16y PBS012 was sold at 8.30854%. No series were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.41X – 3.43X. Till the date of this report, Indonesian government has raised approx. Rp5.8 tn worth of debt through bond auction which represents 5.5% of the 2Q 16 target of Rp97.33 tn.
§ Corporate bond trading traded moderate amounting Rp657 bn. FIFA02ACN3 (Shelf registration II Federal International Finance Phase III Year 2016; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp81 bn yielding 8.500%.
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