Currencies rise on yuan reprieve before deadline


  • Forex
  • Wednesday, 04 Jul 2018

SINGAPORE: Asian currencies and most sovereign bonds rose as the People’s Bank of China’s pledge to keep the yuan stable reduced investor anxiety before the U.S. tariff deadline on Friday. Stocks fell.

China again set the yuan fixing at a stronger-than-expected level and traders appear to have faith the currency’s slump won’t spiral out of control. U.S. levies on $34 billion of Chinese exports take effect July 6

COMMENTARY:

"The PBOC engaged the yuan airbrake yesterday afternoon and, at least for the time being, with the help of Chinese state-owned banks who were seen selling dollars” to prop up the currency, that’s restoring a sense of calm to regional markets,
Stephen Innes, head of trading for Asia-Pacific at Oanda, writes in note

HIGHLIGHTS:

Bloomberg Dollar Spot Index declines 0.1% after 0.6% drop on Tuesday

Offshore yuan, Taiwan dollar, rupiah lead gains in Asia

Chinese and Korean bonds have done the best among Asian sovereigns over the past quarter amid fears of an escalating trade war

MSCI EM Asia Index falls for 3rd straight day

Former Malaysian PM Najib is charged with corruption over 1MDB


MALAYSIA:

Ringgit may recoup some of its recent losses, thanks to higher oil prices and easing political uncertainty, says Masakatsu Fukaya, an emerging-market currency trader at Mizuho Bank in Tokyo; 

still, MYR’s fortunes depend on broader market sentiment, and EM Asian FX are likely to remain under pressure as long as global trade tensions persist

Former PM Najib has been arrested and charged with corruption and criminal breach of trust in connection with the disappearance of billions of dollars from state fund 1MDB

CHINA:

PBOC weakens yuan fixing by 0.15% to 6.6595 per dollar, stronger than average estimate of 6.6607; central bank drains net 80b yuan ($12.1b) in open-market operations

Caixin China PMI Services at 53.9 in June vs. est. 52.7 and 52.9 in May; Caixin China PMI Composite at 53 vs. 52.3 in May

U.S. allows ZTE to temporarily resume some business activities, while it weighs ending a 7-year ban on the Chinese telecommunications company

China would face collateral damage from consumer boycotts of American brands in retaliation for U.S. tariffs

SOUTH KOREA:

Downward pressure on USD/KRW is expected to be dominant Wednesday as the yuan pares earlier losses and rising Korean stocks also pushing the pair down, NH Futures says in note; euro was buoyed as political uncertainties eased, causing dollar to
fall

Foreign reserves rise to $400.3b in June from $398.98b in May

China-targeted tariffs are set to strike South Korea’s export engine

INDIA:

USD/INR 1-month NDFs little changed

Nikkei India PMI Services for June is due; no est., prev. 49.6; 

Nikkei India PMI Composite also due; no est., prev. 50.4

Indians’ love for electronics is blowing out the current-account deficit

INDONESIA:

credit Agricole sees Bank Indonesia continuing to support the rupiah and recommends going short USD/IDR 1-month NDFs to capture the potential gain and high implied yield from the position, it says in note

Indonesia will review imports of capital goods to help rein in the current-account deficit amid a deepening currency rout, says Finance Minister Indrawati

THAILAND:

ANZ recommends buying THB vs PHP via 3-month forwards on view that Thai current-account surplus and domestic recovery should limit further drop in baht, it says in note

Nomura raised its Thai inflation forecast to 1.1% in 2018 and 1% in 2019, from 0.7%, mainly due to higher energy prices, it says in note; lender still expects BOT to leave its policy rate unchanged through 2018-19

PHILIPPINES:

Inflation likely picked up again in June to a new five-year high, Department of Finance says in statement before the data due Thursday: CPI rose 4.8% y/y last month, from +4.6% in May, according to Bloomberg survey

The Philippine economy can easily expand by at least 6.5% over the next few years on robust investments, consumer spending and the government’s infrastructure push, BusinessWorld reports, citing analysts at S&P Global Ratings

Some officials fired in President Duterte’s anti-corruption drive have already been rehired

TAIWAN:

Taiwan dollar likely to weaken toward 31 per U.S. dollar by end of the year as stock outflow continue, which would be the first annual drop in 3 years, according to a Bloomberg survey

     G-10:

Flows will dictate direction because of a lack of trading due to U.S. holiday Wednesday and nonfarm payrolls data and the U.S. tariff deadline on Friday, Ueda Harlow says in note; the yen will face upward pressure on risk aversion if data suggests
Chinese growth is slowing

Nomura continues to see two 25bp Australian rate hikes in 2019, it says in note; however, it concedes a low conviction on the view, citing the current uncertain global and local environment

     COMMODITIES:

Oil rally falters after price hits $75 for first time since 2014

Gold extends gains as dollar, Treasury yields slump

     RESEARCH:
ANZ cut its year-end Asian currency forecasts on the Fed’s rate path and on view that the chance of a de-escalation of trade tension isn’t high, it says in note; lender sees some recovery from current levels into the end of the year. - Bloomberg

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