Easing Virus Woes Lift Asia FX View; Baht Bears at 6-Month Low – Reuters Poll

Countries, including Malaysia, Indonesia, and Thailand, have seen a drop in infections, enabling them to relax restrictions, while Singapore last month became the world’s most vaccinated country after it fully inoculated 80% of its population.

The U.S. Federal Reserve holding off on earlier-than-expected tapering of its massive asset purchases kept the dollar in check and further supported sentiment towards emerging currencies.

Investors placed long bets on the Chinese yuan for the first time since mid-July, and cut short bets on South Korea’s won, Malaysia’s ringgit and the Philippine peso, according to the poll of 11 respondents.

They also turned bullish on Singapore’s dollar and Indonesia’s rupiah for the first time since mid-June.

Short positions on the baht unwounded to their lowest since Feb. 25 as the tourism-reliant economy relaxed COVID-19 curbs, prompting its leading joint-business group to raise its 2021 economic forecast.

Market view of the region’s worst performing currency this year was also buttressed after Prime Minister Prayuth Chan-ocha survived a no confidence vote in parliament last week.

The baht is not out of woods yet, however, analysts at DBS Bank said while highlighting Thailand’s flip to a current account deficit since last year and potential policy normalisation from the Fed.

“Thailand’s need for external financing is coming at a potentially challenging period. The Thai baht is therefore vulnerable to any surprise in the Fed’s hawkish tilt,” they said.

The baht was seen weakening to 35-36 against the greenback by the first quarter of 2022. The currency traded at around 32.70 against the dollar on Thursday.

Long bets on India’s rupee rose to their highest in more than six months, as investors were convinced that a sustained economic recovery was underway despite warnings of a possible third wave of COVID-19 infections.

“Policy makers are likely to remain wary about potential increases in infections and their impact on economic activity,” Standard Chartered Global Research said in a note this week.

“However, given the recent increase in vaccinations and the reduced sensitivity of economic activity to COVID-19 infections, the impact of any future rise in infections is unlikely to derail the recovery process.”

The Reuters survey is focused on what analysts believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3.

A score of plus 3 indicates the market is significantly long U.S. dollars. The figures included positions held through non-deliverable forwards (NDFs).

The survey findings ASIAPOSN are provided below (positions in U.S. dollar versus each currency):


09/09 -0.09 0.33 -0.36 -0.44 -0.69 -0.88 0.23 0.40 0.12

26/08 0.425 0.868 0.474 0.18 0.326 -0.08 1.1922 0.779 1.351

12/08 0.32 0.69 0.77 0.2 -0.09 0.37 1.39 1.17 1.75

29/07 0.27 0.78 0.71 0.27 0.36 0.29 1.4 1.21 1.49

15/07 -0.15 0.27 0.53 0.23 0.13 0.68 1.06 1.06 1.56

01/07 -0.29 -0.29 0.02 0.36 -0.19 0.5 0.49 -0.04 0.85

17/06 -0.63 -0.36 -0.49 -0.5 -0.58 -0.21 -0.05 -0.31 0.2

03/06 -1.34 -0.51 -0.55 -0.4 -0.44 -0.71 0.32 -0.66 0.37

20/05 -0.33 0.43 0.37 -0.06 0.33 -0.03 0.26 -0.22 0.81

06/05 -0.52 -0.39 -0.58 0.31 -0.59 0.86 -0.04 -0.35 0.5

(Reporting by Shashwat Awasthi; editing by Uttaresh.V)

Investors Trim Long Positions on Asian Currencies, Yuan Bets Halved

The 13 responses came in before the Federal Reserve’s policy meeting late on Wednesday where it stunned by signalling it might raise interest rates as early as 2023, a faster pace than initially assumed.

Emerging markets in the past have not fared well with the prospect of U.S. interest rate hikes, and with the Fed opening the door to an accelerated timetable to wean off pandemic-driven monetary stimulus, it could suck funds out of riskier assets and force Asia’s central banks to tighten quicker.

For now, investors remain largely bullish on emerging currencies in Asia, with long bets on the Taiwan dollar and Indonesian rupiah slightly raised from two weeks ago.

The central banks of both countries meet later on Thursday and are expected to leave policy rates unchanged at record lows, but may offer more commentary on their own timetable and economic outlook in light of the Fed’s hawkish shift.

Taiwan’s dollar has appreciated sharply since late March as the economy booms on the work-from-home trend fuelling global demand for tech.

Bank Indonesia’s governor has promised to keep rates low and liquidity in abundance until there is inflationary pressure, but also warned that local bond markets – susceptible to foreign flows – may be impacted by U.S. policy shifts.

Long bets on the rupiah were at their highest since February.

The Fed’s hawkish messaging sent the U.S. dollar to its highest level in around two months and resulted in declines across Asia’s currency space on Thursday, including a more than 0.5% drop by the rupiah.

Emerging markets “will face material headwinds over the next several months” and “will likely sell off in absolute terms and will underperform their DM (developed market) peers,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research.

Broadly, long bets on China’s yuan were lowered after they hit a six-month high in the last poll. It follows the central bank stepping in to warn against speculative bets on the currency after its recent rally.

ING, in a note, said the yuan’s rise will slow from now on.

Bullish bets on the Singapore dollar, South Korean won and Philippine peso were all trimmed.

For the Indian rupee, a strong performer in May, long bets were also lowered.

The “significant hit to economic confidence in the second wave suggests the recovery is going to be delayed,” analysts at ING said, adding that it will cap any significant upside in the rupee.

The Asian currency positioning poll is focused on what market participants believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht.

The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars.

The figures include positions held through non-deliverable forwards (NDFs).

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Shailesh Kuber)


Indonesia Central Bank Says Key Rate “Already Low”, Eyes Virus Outbreak

“We’re continuing to push for interest rate transparency (among banks) because BI’s benchmark has gone down sharply since last year. We’ve cut six times” the Bank Indonesia (BI) governor told a hearing with parliament’s finance commission, referring to a total of 150 basis point reduction since the coronavirus pandemic began.

“At 3.50%, we view the rate as already low and this is to back up the rupiah,” he said, adding that BI was focusing on trying to push down lending rates for new loans.

BI is scheduled to review its policy in a two-day meeting ending on Thursday. A Reuters poll of 26 analysts predicted BI would keep the key rate unchanged for a fourth straight meeting.

At its past meetings, Warjiyo had said BI held rates to anchor the rupiah by making sure returns on Indonesian assets were attractive and to prevent capital outflows.

The governor told lawmakers the rupiah had so far remained “stable” at 14,300 a dollar, but BI was monitoring potential pressure from global uncertainties especially in relation to U.S. markets.

On the domestic front, Warjiyo said BI was assessing the impact of a recent rise in COVID-19 cases on people’s mobility, corporate performance and financial market stability.

“The spillover to stability of the financial system is something that we need to anticipate very much,” he said.

He also said data so far had suggested Indonesia’s loan growth could turn positive in the second quarter, supporting BI’s forecast of 5% to 7% loan growth in 2021.

On top of cutting rates, BI has injected 819 trillion rupiah ($57.62 billion) of liquidity into the financial system during the pandemic, including 115.87 trillion rupiah purchases of government bonds in the primary market.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 14,215.0000 rupiah)

(Reporting by Tabita Diela; Writing by Gayatri Suroyo; Editing by Ed Davies)


G-10 Market Views

The Euro

If I had a dime for every time I’ve been disappointed by the Euro‘s behavior the past two years I would have a Lamborghini parked in my driveway. But now is not the time to fold the cards on the long Euro. Soft qualitative data continues to be the scourge for the Euro bulls, and when compounded by the low volatility G-10 environment the US dollar remains the preferred parking spot during any global growth or risk sentiment wobble. With financial conditions super cheap, central banks winning the volatility argument so far, currency trading has turned into a wrenched chase for yield. as USD continues to sit perched atop the G-10 carry trade pecking order, although I wouldn’t go as far as calling it ” greatest carry trade in the world” it does provide a good safety net when markets turn uncertain.

Why we remain guardedly bullish EURO

The further downside in volatility is limited, and with increasing signs of a global cyclical upturn, which should ferment in Q2, it’s likely to lead to a weaker US dollar especially as the Fed remains on hold. The view is predicated on the belief that the Greenback remains one of the most countercyclical currencies in G-10. But more significantly for the Euro, is that over time the improving China economic landscape will help the markets see through the Eurozone soft financial data. All roads on this trade lead through Beijing, and with the Euro positive beta to global growth, the combination of a dovish Fed and an accommodative Pboc will be enough oil to grease the global economic engine and send the Euro higher.

If traders regain a high degree of optimism about global growth, Eurozone soft data will shoot higher, and the Euro can easily bridge the valuation gap and move closer to the 1.1700 level.

What’s our most significant Euro downside risk?

Donald Trump signs a deal with China; he will pivot to Europe and slap tariffs on European cars. This topic is picking up a lot of voice in chat rooms and around G-10 banter. It does make sense from the perspective as the focus is on election 2020 and Trump will want to appease his America first electoral base even more so after agreeing to a watered-down trade deal with China.

It’s no secret that the German car industry is an EU economic powerhouse and critical export sector. But last weeks German PMI print is a bit concerning despite a significant easing in global financial conditions and surging China data as purchasing managers sentiment has yet to bridge the gap been market, expectations. But in reality, EU  big auto is not bouncing back after a considerable slump aggravated by the diesel scandal. The fact we are not seeing China stimulus feeding through to the sentiment data suggests something is amiss in Germany, that’s for sure.

This Feb 17 Reuters article is making the rounds again. But as the interest rate carry costs continue to mount with absolutely no joy above 1.1300, I would be amiss not to put my self through a sanity check if this mind-numbing range trade persists.

The Australian Dollar

It will be a massive test for our bullish Australian dollar resolve this week as we could expect the RBA to turn the rate cut wheels in quicker motion on a benign inflation print given the RBA minutes suggested they remain open to rates cuts if inflation remains low.

But for those looking at last week New Zealand CPI miss as a foreshadow of Australian inflation  – there are very few components in the NZD CPI that provide enough synchronic correlations with the AUD CPI.  Although telling by last week price action, it certainly emboldened those commentators with dovish RBA views.

But there appears no escaping this monotonous low volatility market as it seems we are in a cycle doomed to mindlessly repeat past patterns as the infinite sequence of lather, rinse and repeat takes hold.

Indeed we are stuck in a quagmire trying to weigh the odds of an improving global environment versus the slowing domestic economy. However, keeping in mind the counter-cyclical proclivities of the USD, so ultimately the global growth updraft which should intensify in Q2 will push the Australian dollar moderately higher although RBA dovishness will likely blunt any notion of explosive gains.

I have been riding this trade for a while now, and unless we get a surprise on the CPI print this week, I’m resigning my self to hold the position for US-China trade war resolution knee jerk higher.

Indeed kits a sad day in the currency pit when trading views are predicated on knee jerk flights of fancy.

Asia FX views

In EM, we will be following monetary policy announcements in TRY and IDR, as well as exports data in KRW, TWD and THB.

China: Yuan continues to strengthen?

The China bulls had an encouraging week as USDCNH moved below the critical 6.70 level. But what’s promising this time around is that it came on the back of solid China economic fundamentals and not due to increasingly repetitive trade resolution headline or a broadly correlated USD move, but yes simple domestic fundamentals were the primary catalyst.

China’s economic data was robust last week supporting a growing consensus view that  China is on a soft-landing trajectory which will continue to lend support to domestic capital markets but should also give backing to a plethora of cross-asset markets.

While the robust data and as confirmed by the latest Pboc policy statement suggests a shift towards a less dovish stance and will lift the standard for additional Pboc easing through 2019, but this will also play out favorably for the Yuan in the rates markets. From the USD-CNY interest rate differential perspective, at least by historical measures it too suggests, the Yuan could strengthen and lends further support to our view that on a US-China trade deal the USDCNH could fall to 6.50 or below subject to the removal of US tariffs.

With that said, this does not mean China regulators will sit on their hands quite the contrary as the Pboc will continue to provide more targeted easing while indicating a preference for fiscal policy to take charge all of which suggests stimulus in one form or another will act as a rudder for the recovering China economy.

Malaysia: Ignore the FTSE Russel noise?

The Norges exiting Malaysia Bond holdings coupled FTSE Russell possible exclusion provides a significant technical overhang for the Ringgit, and when factoring a dovish BNM backdrop, it suggests the Ringgit will struggle for traction and could trade with a weaker short-term bias. The  Norges and Russel shocker aside markets are positioning for a benign inflation print this week that should lend support to a growing chorus of calls for the BNM to drop interest rates next month.

In the absence of a robust offshore Ringgit market, liquidity can dry up quickly especially when foreign investors are all running for that small exit at the same time. Bid to offer spreads increases dramatically which tends to exaggerate currency moves. This phenomenon is what occurred last week as Malay bonds repriced on panic fear which caused currency traders to price in a substantial premium for possible outflows. But given the macro policy backdrop remain supportive, the market faded the Bond market move which in turn stabilized the Ringgit.

None the less, we remain short term bearishly biased on the Ringgit as the writing does appear to be on the wall. BNM has revised growth forecasts lower, benign inflation is the new norm, while the definite shift in central bank rhetoric adds more enthusiasm to the chances for a rate cut next month.

Foreign outflows related to Norges shifting away from EM bonds and WGBI potentially dropping Malaysia from the index perhaps got the markets nudging to the 4.15 level a bit quicker than expected. However, this week’s inflation report should validate our shift to the BNM  rate cut camp which suggests less yield appeal for the Ringgit. Indeed a possible interest rate cut would lessen MYR forward rate currency premiums and could take a bit of shine of the local currency. Keeping in mind in the mind-numbingly low volatility currency environment investors continue to seek out currency carry appeal

However, given the decisive economic pivot in China suggesting global growth headwinds are easing and factoring in a possible US-China trade deal, so over the long haul we should expect the Ringgit to remain supported t and to piggy-back, the strengthening Yuan as China economic resurgence will have a prosperous effect across all ASEAN economies.

Indonesia: Surprise Rate Cut??

I don’t have a position on IDR, and one of my rules is not sound like a windbag and comment on markets I don’t have skin in the game. But I thought the IDR is worth a mention as I’m considering positioning for a surprise rate cut this week.

Global central banks have turned uber-dovish; inflation is at the lower end of the BI range, and real interest rates are near historical peaks. The question comes down to how quickly the BI will cut. Against the market consensus, I expect BI to cut interest rates this week reverse a portion of last year’s emergency rate hikes.

I’m very neutral on the IDR, but with foreign bond positions, a tad stretched, as  Indonesia saw large debt inflows of over USD5bn in Q1 and with BI intervention providing a decent backstop likely accumulating reserves. Indeed, conditions are ripe to play the contrarian view and put some capital to work as after all is said and done,  playing for 1 % drop in the IDR on a surprise rate cut might not be all that bad of a risk-reward.

This article was written by Stephen Innes, Head of Trading and Market Strategy at SPI Asset Management