Asia FX Weekly

  • Jul 17, 2023

Lower USD/CNY midpoint fixing could deter some bet on one-side depreciation of the CNY against the dollar

FX views: A light divergent performance was seen among Asian currencies last week, with mild depreciation in currencies like IDR, INR, PHP, and TWD, mild appreciation in currencies like KRW and THB. In near term, lack of certainty in Yuan’s trend, unless sizable stimulus policies are rolled out by Chinese government to boost economic activity.

Week in review: Taiwan’s exports for June surprised market to the downside, dropping 23.4%yoy, after 14.1%yoy decline in May. Inflationary pressures continued to ease in South Korea, Indonesia, Philippines and Thailand. Notably, while Taiwan’s headline CPI inflation slowed more than expected to 1.75%yoy in June, core inflation ticked up to 2.61%yoy.

Central bank monitor: Bank Negara Malaysia kept rates on hold at 3% last week. The statements do not suggest any imminent change in policy rates, citing limited risks of financial imbalances and no mention of the weakness of the ringgit. We expect Bank of Korea to keep rates on hold in its monetary policy decision this week.

Week ahead: Following last week’s non-farm payrolls print, markets will keep a keen eye on June CPI estimates for the US, where consensus sees inflation moderating to 3.1%yoy. Meanwhile, China will release estimates for inflation, trade, and possibly total social financing. We continue to see Chinese authorities pushing out more stimulus to support the economy over the next few months. India will also announce its June CPI estimates, which is expected to rise to 4.6%yoy due to a pickup in vegetable and tomato prices.


PBOC CONTINUED TO SET LOWER-THAN-EXPECTED USD/CNY MIDPOINT FIXING LAST WEEK

Sources: Bloomberg, MUFG GMR