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Emerging market currencies in focus

Asia EM currencies under focus next week.

The Chinese Yuan

The countercyclical mechanism has been very effective in suppressing volatility into month end which has effectively capped offshore Yuan speculation and held the RMB complex in check trading in very narrow ranges.

It’s looking like a slow escalator ride up to the USDCNH 7.0 level.

Given the Pboc arsenal to suppress top side speculation, traders will likely back off for the next month or two, but a move higher is still on the cards given an anticipated China slowdown and the possible divergent Pboc and Fed policy paths.

The Korean Won

USDKRW traded 5 won lower, breaking the essential 1110.00 support on a mix of month end exporter supply and equity inflows from the reported 2 trillion of buying this week ,Trump signed a revised free trade agreement with South Korea with is a big win with regards to bilateral trade This is huge for the local economy and a bullish Korea bias

The Malaysian Ringgit

A very range-bound market as the Ringgit remains challenged by competing narratives. On the one hand, we have surging oil prices which are incredibly supportive but on the other the US Federal Reserve which will continue to raise interest rates. Higher US interest rates will be in direct conflict with a very neutral BNM policy due to a soft economy, as suggested by a weak Q2 GDP print and tepid inflation outlook.

The troubling Asia high yielders 

It’s debatable if we’ve seen the last major sell-off in INR-IDR, as my rational logic says we have not. But one thing that is a clear the RBI-BI mandate to keep on tightening while implementing various synchronous control features to keep currency speculators at bay is having a short-term positive effect on market sentiment. The respective governments are not addressing the big elephants in the room, which are the deficits. As such, the tail risk remains high.

The Indonesian Rupiah

$IDR dropped 50 rupiahs, boosted by headlines that the onshore NDF market settled in rupiahs was signed into law. But so far, the street in Singapore remains a bit wishy-washy, and I don’t see an enormous appetite for market makers to be offering more dollar liquidity while settling in Rupiahs unless the Bi is ready to provide a  backstop mechanism.

The Indian Rupee

Finally, a modicum of stability in the Rupee. The government announced an increase in tariffs on some non-essential imports this week, but more significant the RBI addressed liquidity concerns increasing SLR by 2%.

But this upcoming week, traders will be focused on the RBI who are expected to raise interest rates to defend the Rupee at all cost amidst significant headwinds with US yields moving higher and vapid talk in the oil markets about prices heading to the US $ 100 per barrel.

Global EM currencies in focus next week

The Mexican Peso
AMLO’s confirmed Jonathan Heath as his first Banxico nominee. This announcement confirms reports from WSJ earlier this week. With the departure of Ramos Francia and uber-hawk, its expected this appointment will shift the board more dovish.

We were expecting the text of the US -Mexico NAFTA 2 published yesterday, but now this is triggering suspicions that the version may include a trilateral component after conciliatory comments from Trump. I think Canada is done, but the deal will be inked after the Quebec elections st for OCT 1.

The Turkish Lira 

Market chatter continues to escalate that Turkey will start a Government-sponsored FX swap platform overnight Monday via the Istanbul Stock Exchange. Funding will be closer to 24% vs the more expensive rates offered offshore. And might go ways to explain TRY appeal.

Media: Please Join me on Bloomberg TV live from the Singapore Studio at 7:10 AM SGT Monday, Oct 1, discussing my views on NAFTA2  RBA, Brexit and splashed with a bit of Brent and a sprinkled with  Iron Ore flakes.   Bloomberg TV Asia

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