FXFX Talking
Asia FX Talking: Re-rating of Asia is hard work
After a month in which Asian currencies enjoyed strong gains against the dollar, the move appears to have stalled. Trade balances are generally going well for the region, but the problem is weak domestic demand growth - most notably in China. Lower US rates will help local currencies, but gains look fragile and November US elections will have a big say
Main ING Asia FX Forecasts
| USD/CNY | USD/KRW | USD/INR | ||||
| 1M | 7.12 | ↑ | 1320 | ↓ | 84.00 | ↓ |
| 3M | 7.10 | ↑ | 1300 | ↓ | 83.50 | ↓ |
| 6M | 7.06 | ↑ | 1300 | ↓ | 84.00 | ↓ |
| 12M | 7.03 | ↑ | 1300 | ↓ | 84.00 | ↓ |
USD/CNY: External factors still the main driver
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/CNY
7.1121
|
Neutral | 7.12 | 7.10 | 7.06 | 7.03 |
- The gradual recovery of the CNY continued over the past month, with the USDCNY pair showing strengthening from 7.18 to around 7.09. Short-term movements may continue to be dominated by external factors.
- China-specific factors continue to favour CNY depreciation due to weak growth, capital outflows, and People’s Bank of China (PBoC) easing, but these factors have been priced in for some time. The US election developments are a wildcard for the CNY, with a Trump victory potentially having a depreciation bias for the CNY and vice versa for Harris.
- Yield spreads and PBoC fixing remain the two major factors for the CNY price. Yield spreads will move more in favour of the CNY once the Fed cuts get underway, even if the PBoC continues to cut rates. PBoC fixing continues to resist rapid movements in either direction.
Source: Refinitiv, ING forecasts
USD/KRW: KRW likely firmer, but volatility
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/KRW
1341.00
|
Mildly Bearish | 1320.00 | 1300.00 | 1300.00 | 1300.00 |
- The KRW appreciated by 2.5% as the USD weakened in August. However, volatility grew larger than the previous month.
- While volatility will remain for the time being, the KRW will welcome the Fed’s rate cut. The Bank of Korea is likely to cut in October as inflation eased to 2%. But a rebound in home prices and household debt will limit the pace of easing by the BoK.
- As long as there are no clear signs of a recession in the US, the KRW is likely to strengthen. But uncertainty over US politics and policies is likely to limit further KRW gains below the 1300 level.
Source: Refinitiv, ING forecasts
USD/INR: Reserve Bank of India gearing up to cut rates
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/INR
83.95
|
Neutral | 84.00 | 83.50 | 84.00 | 84.00 |
- The INR has been virtually oblivious to recent market turmoil, staying firm when all other Asian FX was slumping, and weakening as the rest all recovered. This could reflect some reserve building by the RBI, but reserves weren’t in bad shape before, so it really isn’t clear what is going on.
- The RBI left rates on hold at their 8 August meeting. But there are increasing signs that they are gearing up to ease.
- Inflation remains broadly stable aside from seasonal food price fluctuations, so there isn’t much to stop them at upcoming meetings as real policy rates are very high.
Source: Refinitiv, ING forecasts
USD/IDR: IDR gains as global rates outlook shifts
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/IDR
15455.00
|
Mildly Bullish | 15850.00 | 15500.00 | 15250.00 | 15000.00 |
- The IDR is up about a percent and a half so far this month, which encompasses all the US payrolls-related turmoil. That puts it at the top end of the Asia pack, just behind the MYR which is up 2.4% over the same period.
- The IDR had been one of the weaker currencies in the first half of the year, and so this could simply reflect a bit of catch up.
- With inflation still respectably low, and the external rates outlook getting increasingly dovish, Bank Indonesia may follow its regional peers by trimming its high policy rates, but we expect it to be cautious and lag behind others.
Source: Refinitiv, ING forecasts
USD/PHP: Higher inflation dampens rate cut prospects
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/PHP
56.45
|
Mildly Bullish | 57.00 | 56.70 | 55.50 | 55.50 |
- The PHP made decent gains in August, just lagging behind the IDR. As well as the general global rates and FX outlook, the PHP has benefited from a dampening of rate cut expectations after higher-than-expected July inflation.
- There could be an additional boost to the PHP from reports that the Philippines is in talks to rejoin the JPMorgan EM bond index.
- So far this year, the PHP has had one of the strongest coefficients with respect to changes in the JPY, so we might anticipate further JPY gains to pull the PHP along faster than some of its regional peers.
Source: Refinitiv, ING forecasts
USD/SGD: MAS could follow regional peers
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/SGD
1.3048
|
Neutral | 1.31 | 1.31 | 1.31 | 1.27 |
- As you might expect, the SGD has been an upper mid-table performer in the Asian FX league in the month-to-date.
- Not a great deal has changed for the Singapore macroeconomy in recent weeks. The activity data remains a bit soft, and inflation has inched slightly lower, but remains around 3% YoY on a core basis, even if the headline has dropped to 2.4%.
- The latest Monetary Authority of Singapore meeting left all parameters of the SGD NEER target unchanged, but there is a chance that we could see some shift in October, especially if other regional central banks are beginning to trim.
Source: Refinitiv, ING forecasts
USD/TWD: TWD faces some short-term overhangs
|
Spot
|
One month bias | 1M | 3M | 6M | 12M |
|---|---|---|---|---|---|
|
USD/TWD
32.10
|
Neutral | 32.10 | 31.65 | 31.15 | 30.70 |
- The TWD saw some appreciation over the past month, with the USDTWD pair moving down to a low of 31.8 before rebounding to around 32.0.
- Markets pricing in US rate cuts have moved the yield spread to be more favourable for the TWD. However, at the same time foreign funds saw notable outflows from the Taiwan market, which led to relative underperformance versus other Asian FX.
- In the near term, the US elections and the risk of a tech sector pullback are also factors which could drag the TWD relative to other Asian currencies. If these uncertainties are resolved, the TWD has room to see a bounce back later on.
Source: Refinitiv, ING forecasts
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This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more