Awaiting The Outcome Of The UK Referendum

 

      USD/Asians were only temporary impacted by the US Fed’s decision not to hike rate in Jun as the market quickly return focus to the key event for this week – the UK referendum on its EU membership. Markets were startled by polls that showed the Brexit camp ahead, sending Asian currencies lower against the USD. The murder of the UK lawmaker however stalled the gains in the Brexit camp, leading to some unwinding as risk sentiments recovered and weighed on USD/Asians even as we write.

      USDAXJs are likely to remain choppy in the run-up to the UK referendum even though polls are showing the Bremain camp is now in the lead. However, we note that polls are fickle and could change at a moment notice. In such an environment and based on our analysis below, we prefer to sell USDMYR and USDKRW on rallies towards 4.10 (Spot ref: 4.06; SL: 4.18) and 1165-1170 levels (Spot ref: 1160; SL: 4.15) respectively. Our long standing view though is for the UK to remain in the UK and post-referendum, we expect risk sentiments to recover and this should trigger portfolio flows to emerging markets again. This in turn should keep the Asians supported in the week after the referendum.

      Aside from the UK referendum, we have two central bank meetings this week. The BoT and BSP meets on 22 and 23 Jun respectively. We expect both central banks to stand pat on policy. The BoT’s policy rate at 1.5% is already near historic lows and a further reduction is unlikely to spur borrowing significantly to boost growth. Instead, the BoT’s preference is to see fiscal policy do the heavy lifting to boost growth with monetary policy playing a complementary role. For the BSP, the transition to an interest rate corridor could see the central bank extend its pause amid strong economic growth and benign inflation.