Philippine Cbank Tempers Outlook, Cuts 2021 c/a Surplus Forecast

It now projects next year’s current account to switch to a deficit of $1.4 billion, or 0.3% of GDP, instead of the previous forecast of a $6.7 billion surplus equivalent to 1.5% of GDP, figures presented at a media briefing showed.

The Bangko Sentral ng Pilipinas (BSP) said the latest projections took into account “downside risks” that continue to build up, underpinned by the emergence of highly transmissible COVID-19 variants.

“The lingering uncertainty continues to cast a shadow on external sector prospects over the near term as the direction and duration of the pandemic remains little known,” it said in a statement.

The balance of payments this year is now projected to yield a surplus of $4.1 billion, or 1.1% of GDP, down from the previous forecast of a $7.1 billion surplus, or 1.8% of GDP.

For 2022, the BOP surplus is seen narrowing to $1.7 billion, or 0.4% of GDP, lower than the previous forecast of $2.7 billion, or 0.6% of GDP.

The BSP also lowered its projections for end-2021 and end-2022 gross international reserves to $114 billion and $115 billion, from $115 billion and $117 billion, respectively.

The revisions reflect the BSP’s “more guarded” outlook for the global economy and developments at home, including the downscaling of this year’s GDP growth target, said Zeno Ronald Abenoja, managing director at the central bank’ Department of Economic Research.

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

(Reporting by Enrico Dela Cruz; Editing by Martin Petty)

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):

DATE USD/CNY USD/KRW USD/SGD USD/IDR USD/TWD USD/INR USD/MYR USD/PHP USD/THB

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)

 

Not only the Turkish Lira – The Indian Rupee Hits All Time Low

This week the Indian Rupee crossed 70 for the first time in its history. India’s currency crossed the psychological level on Monday and traded as high as 70.80 on Wednesday. The Rupee is just one of several emerging market currencies to come under pressure in the wake of the Turkish Lira’s collapse. However, the Rupee may be vulnerable to further weakness regardless of the weakness of the Lira.

The Turkish Lira is now down about 35% since the beginning of the year. The Argentinian Peso has lost close to 37% of its value in 2018 after the country was forced to turn to the IMF in May. Other emerging market currencies losing ground are the Indonesian Rupee, the Philippine Peso, the Brazilian Real and the South African Rand.

However, not all emerging market currencies are losing ground. The Mexican Peso has gained ground in 2018, and most South East Asian and East Asian currencies are holding their value.

Almost all the countries that have seen their currencies come under pressure are those with wide, or widening, current account deficits. In India’s case, analysts have been worried about the deficit for some time, and these fears were confirmed when the commerce ministry announced on Tuesday that it had hit a five year high of $18 billion in July.

The current account deficit is growing due to rising oil prices and a surging USD, and FDI and foreign institutional investment flows are not high enough to offset the widening deficit. The rising oil price alone could see India’s oil import bill growing by $26 billion in 2018 and 2019, and is unfortunately likely to offset any export gains due to the weaker currency.

The central bank has also raised rates twice, in June and August, the first rate hikes in four years. It may hike rates further if the currency continues to weaken, though it will be cautious about doing so if economic growth slows.

India ratings and research have also just lowered its growth forecast for the year to 7.2%, from 7.4% sighting rising inflation due to oil import costs.

USD/INR Weekly Chart (Source: Tradingview.com)
USD/INR Weekly Chart (Source: Tradingview.com)

Going forward, the most important factors to watch will be the oil price and the strength of the USD. While developments in the domestic economy will play a part, they are likely to be outweighed by these external factors. Some analysts are forecasting the Rupee to reach between 72 and 73.55 by year-end, based on current fundamentals – but these can change rapidly.

If current fears over emerging market currencies ease, the Rupee will probably retrace to an extent. Short term support may come into play at 69.70, and if that doesn’t hold, the breakout level at 69 could be retested. It seems very unlikely that the currency would strengthen below that level without a substantial change in the economic environment. A likely trading range for the remainder of 2018 may be 69.70 to 72.

While the selloff of the Turkish Lira has played its part in the weakness we are seeing in the Rupee, fundamentals are equally to blame. The Rupee is not one of the currencies that is most influenced by emerging market sentiment and domestic factors rather than speculation play more of a role in the price.

Traders should, therefore, pay as much attention to oil prices and domestic developments as they do to sentiment or technical levels.