Maybank FX Tech Weekly - 09 Oct 2015

       Focus for Asia this week is on China’s trade data (Tue), China inflation data, Singapore’s MAS bi-annual monetary policy meeting, 3Q GDP (Wed) and BI meeting (Thu). For the majors, Fed and ECB speaks littered throughout the week could be of interest. 

       The 4th quarter kicked off with Asian-ex JPY and commodity-linked currencies steaming ahead, reversing some of its initial weaknesses vs. the USD. MTD, IDR was up more than 9%, MYR +>6%, AUD and NZD +>4%. Question is will this rally continue further?  What happened to all the EM growth concerns, China slowing growth, debt deleveraging worries flagged by IMF, ADB, World Bank, Fed’s Yellen just 2-3 weeks ago? What has changed? We think markets chose to focus on the “breathing space” arising out of a potential delay in Fed rate hike into 2016. The consequential action saw risk assets including commodity and equities rising, together with an unwinding of USD longs vs. the most sold-off currencies for the year. This “breather” may continue in the short term but we caution against excessive complacency as those above-mentioned concerns remain valid. FX volatility (CVIX Index proxy) has fallen to 2015-lows but this does not mean that currencies have returned to a low volatility regime. AXJs remain volatile amid fickle risk sentiment and lingering EM growth concerns. We look for better levels to reinstate USD longs.

       On MAS monetary policy meeting (Wed), it remains a close call. We expect the MAS to re-center its SGD NEER policy band to the prevailing level on 14 Oct on the weaker growth outlook and upside risks to core inflation in 2016, with no change to the gradual, modest appreciation path. Moreover, the output gap is likely to slip into a slight negative for the next three quarters from 1Q 2016. This could prompt the MAS to ease policy at its Oct meeting via a re-centering of the policy band.

       There is a handful of Fed and ECB speaks next week. For the Fed, Lockhart (Moderate), Evans (Dove), Brainard (Dove) on Mon; Bullard (non-voter; moderate) on Tue; Dudley (Dove), Bullard and Mester    (non-voter; hawk) on Thu. For ECB, Mersche speaks in Singapore on Tue and Wed; Constancio, Nowotny, Hanson on Thu; Nowotny and Jazbec on Fri. We expect them to reiterate that ECB could do more QE if need arises to keep EUR strength in check. Other data we are watching includes Malaysia Aug industrial and manufacturing production (Mon); NZ Sep food prices; UK Sep CPI, PPI, RPI; GE ZEW index (Tue); US Sep PPI, retail sales; Beige Book (Wed); AU Sep employment; BI meeting (no change expected); Indonesia Sep trade; SG Aug retail sales (Thu); US Sep IP; NZ 3Q CPI; Malaysia Sep CPI; SG Sep inflation data (Fri).