Asian Currencies Continued to Climb on the Back of Soft USD

11 August 2016

Rates & FX Market Update

Asian Currencies Continued to Climb on the Back of Soft USD

Highlights

¨   Global Markets: Incoming US data continue to sway investors’ sentiment, with the weak non-farm productivity partially eclipsing the robust NFP which dampened strength on USD while yields on 10y declined back to the 1.50% handle. Eye FOMC minutes in the week ahead which could provide hints on the committee’s near term priorities over the coming months alongside its resolution to raise FFR this year. The outgoing RBA governor, Stevens, reiterated his view towards limited efficacy on a monetary policy driven economy while cautioning for inflation to likely undershoot the 2.0-3.0 target. ACGBs tracked gains on USTs overnight, with room for further RBA policy accommodation likely to continue favouring a mild overweight duration.

¨   AxJ Markets: Singapore’s 2Q final GDP estimate edged lower to 2.1% y-o-y (advanced estimate: 2.2%), prompting the Ministry of Trade and Industry (MTI) to reduce the upper bound on 2016 GDP forecast to 1.0-2.0% (previous: 1.0-3.0%), weighed by the weaker global economic outlook and the soft trajectory on oil prices. SGD appreciated marginally against the softer USD overnight, where we continue to position for upward momentum on the USDSGD pair over the coming months amid lingering expectations for MAS to recentre the SGD NEER; maintain mildly bearish SGD and a neutral stance on SGS. BoK’s status quo decision this morning was within consensus expectations following the last rate cut in July, as concerns on the elevated household debt and financial stability continue to limit BoK’s hand to bolster the moderating growth. KRW surged to 1095/USD (+1.00% overnight) ahead of BoK’s decision, with the softer movements on USD continue to drive USDKRW to test lows sustained in 2015, which could dull KRW export competitiveness; maintain cautious stance on KRW over the coming months.

¨   USDCNY edged lower to 6.636 against the backdrop of softer USD movements ahead of the September G20 meeting hosted by China. PBoC’s commitment towards a prudent management of monetary policies alongside CNY demand from Yuan globalization could underscore resilience on CNY over the coming quarters, where we expect a modest but measured depreciation to 6.70 and 6.85 by YE16 and 1H17 respectively.