14 September 2018
Asia week ahead: Is relief from the currency sell-off transitory?

Positive economic data out of Indonesia and the Philippines is unlikely to come as lasting relief for their respective currencies. Meanwhile, few are betting on a rate hike from the Thai central bank as the currency enjoys strong external payments support

Relief from currency sell-off but how long will it last?

In keeping with broader emerging markets, Asian currencies received some support from a softer US dollar this week. But as the US Federal Reserve is set to hike rates again later this month and once more before the end of the year, just how long will the relief last? This will remain the question for some time, but for now, we anticipate that Asian currencies hit hardest by the recent contagion will see some support from friendly economic releases.

The trade data dominates the Asian economic calendar, with Indonesia, Thailand, and Singapore releasing numbers. We think Indonesia’s trade figures will be closely-watched for clues about where the trade deficit is heading. We are hoping for some good news of a narrower deficit, which on our house forecast falls to $750 million from over $2 billion in July. But we don’t think this is enough to stem the currency (IDR) weakness. With our forecast for August, the cumulative deficit of $3.8 billion in the first eight months of the year is a huge swing from a $9.1 billion surplus a year ago. We expect no break in the Bank Indonesia rate hike cycle just yet.

Thailand stands at the opposite spectrum with a large trade surplus driving the currency's (THB) outperformance. We estimate an August trade surplus of $1.2 billion, a sharp positive swing from a $516 million deficit in July. Likewise, the continued strength of Singapore’s non-oil domestic exports- albeit with some anticipated electronics weakness in August- and the central bank policy of a ‘gradual and modest’ appreciation of the trade-weighted exchange rate is keeping the Singapore dollar (SGD) among Asia’s outperforming currencies.   

Philippines’s July overseas workers remittances and the August balance of payments position also are expected to be positive for the local currency (PHP). Remittances were unusually weak in June this year despite seasonal inflows for school fee payments but we expect some improvement in July helped by the stabilisation of the peso. A bounce in foreign exchange reserves in August also heralded some improvement in the overall balance of payments in the last month. Still, with remittances insufficient to cover the trade deficit on a sustainable basis and the current account in deficit, this isn’t a long-term positive for the Philippine peso.

Asean Morning Bytes 14 September 2018

General market tone: Risk On. Market players will likely react positively to reports indicating that the US and China will indeed hold high-level discussions on trade. On the central bank front, the ECB and BoE kept rates unchanged while US inflation slowed in August.  

International theme: US inflation slips while China and the US look set to talk anew

  • US inflation slowed, helping boost some risk-taking activity even if the market continues to price-in a September rate hike.  The ECB and the BoE both kept policy rates unchanged with the former recognizing the increased risk of financial market volatility and the effects of the possible trade war.
  • China and the US appear headed for another round of trade discussions, albeit with higher level officials expected to come to the table. Meanwhile, Canadian PM Justin Trudeau reiterated his desire to only sign a deal that was “good for Canada”.  
Reading time around 3 minutes

Good MornING Asia - 14 September 2018

WIth markets ending the week in an upbeat mood, is there anything on the horizon that could wreck this Friday feeling? 

In this bundle