IDR: USD/IDR Drift Higher Continues, BI Sees Need For Easier Policy Settings, But Can't Move Yet
USD/IDR spot has drifted higher in the first part of Thursday trade. We were last near 15720, which is around 0.20% weaker in IDR terms. The 1 month NDF is largely unchanged though, last tracking at 15735, which just under Wednesday highs near 15740/45. Earlier Feb highs in the 1 month NDF rested just above 15800.
- IDR is underperforming other USD/Asia pairs so far today, which are mostly weaker.
- Portfolio flows remain a headwind for IDR. We saw close to flat net equity flows yesterday, while bond outflows were on Tuesday. Foreign investors' holdings of local bonds have fallen since late Feb.
- Bi Deputy Governor Juda Agung was on the wires a short while ago stating that the economy needs a rate cut to boost growth, but the BI can't adjust rates yet, given global conditions (BBG). This likely reflects the still elevated Fed funds backdrop.
- The BI official added that the central bank will keep the rupiah stable.
- Still, the recognition of the need to cut rates, underscores the BI's policy outlook. Concern around the domestic economy may also keep a lid on equity upside.
- On the data front tomorrow we have the manufacturing PMI for Feb, along with inflation data.
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BONDS: NZGBS: Richer, Closed Mid-Range, Hawkish Comments From Officials
NZGBs closed flat to 4bps richer, with the 2/10 curve flatter.
- Bloomberg reported that NZ Finister Minister Willis responds to questions in parliament stating that annual inflation of 4.7% in Q4 is an improvement but “is still far too high”. She added that on tradables inflation has stayed stubbornly high indicating domestic factors rather than global factors are playing the greatest role in driving inflation.
- (Bloomberg) ANZ forecasts the RBNZ will start cutting interest rates from August but doesn’t rule out the chance of a rate hike next month, following comments from the central bank’s chief economist today.
- ICYMI, RBNZ Chief Economist Conway said in a speech today in Wellington that “we still have a way to go to get inflation back to the target midpoint.”
- Swap rates closed 1bp higher to 3bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed flat to 3bps firmer across meetings, with July-August leading. A cumulative 92bps of easing is priced by year-end.
- Tomorrow, the local calendar sees ANZ Business Confidence. Australia sees the release of Q4 CPI data.
JGBS: Mixed Results For Today’s 2Y Supply
The 2-year bond supply has demonstrated mixed demand metrics, as the low price failed to meet dealer expectations, which had been projected at 100.045, as per the BBG poll, but the cover ratio increased to 3.742x from 3.340x in December. It was the highest cover ratio for a 2-year auction since July last year. The auction tail was also shortened.
- Considering that today's auction takes place amidst tepid demand indicators for January’s 5-year offering, the result is likely to be viewed as solid.
- As highlighted in our auction preview, today's auction occurs amidst continuing bullish sentiment towards short-end global bonds.
- Additionally, today’s result appears to indicate that the current outright yield adequately accounts for uncertainties surrounding the BoJ policy outcome.
- There has so far been a slight positive reaction in the cash yield in post-auction trade. JGB futures have up ticked in early afternoon trading.
JGBS AUCTION: 2-Year JGB Auction Results
The Japanese Ministry of Finance (MOF) sells Y2.3597tn 2-Year JGBs:
- Average Yield: 0.075% (prev. 0.064%)
- Average Price: 100.049 (prev. 100.071)
- High Yield: 0.082% (prev. 0.074%)
- Low price: 100.035 (prev. 100.050)
- % Allotted At High Yield: 57.0165% (prev. 69.2086%)
- Bid/Cover: 3.742x (prev. 3.340x)
