Maybank FX Thoughts - Finding Opportunities in a Volatile World - 10 Mar 2016

Please see our Maybank FX Thoughts.

       Overview: Risk sentiment improved, oil prices found interim bottom, volatility off 2016-highs and USD softened.

       G4: UST curve suggests that markets expect only 1 hike at most within the year but economic data still suggest that 2 hikes are not impossible.  Put that together and USD strength may re-emerge. Meanwhile, ECB needs to anchor inflation expectations or risk jeopardising ECB credibility; we see further ECB easing and that should weigh on the EUR. Elsewhere, GBP should remain heavy amid Brexit fears. For USDJPY, we do not expect further moves by BoJ in 1H as the central bank evaluates the impact of NIRP on banks and the economy. Further easing likely in 3Q 2016. Watch 111 support level should confidence of Abenomics erodes further.

       China: CNY adjustment is not over but PBOC needs to limit the extent of its depreciation as the search for the bottom  continues along with capital outflows. Markets are convinced and downside pressure has eased significantly.  We see measured CNY depreciation towards 6.75 by year end.

       AXJs: Most ASEANS outperforming North Asians in terms of fundamentals and currencies. For Malaysia, Ringgit Weakness gradually dissipating amid supported oil prices and investor sentiment. For Indonesia,  portfolio inflows have been supportive for the IDR. Still see further IDR strength towards 12,500 end-2016. For Singapore, output gap projected to widen further (negative) and lower core inflation could nudge MAS to ease in addition to eroding wage-productivity competitiveness and uptrend in domestic interest rate. Room for further SGD weakness.

       Concluding Remarks: In times of easy monetary policy and supported risk sentiment, we favour higher yielding currencies including IDR, MYR, AUD, PHP. Fundamentals continue to suggest weakness in North Asian currencies (KRW, CNY, TWD) and SGD.