Asia Weekly Outlook / Strategy: 03-07 Sep
PBoC's move to reintroduce the counter-cyclical factor in the yuan's daily reference rate has supported yuan at the start of the week. USD/CNH started the week at a 4-week low of around 6.8000, and picked up gradually thereafter to around 6.8700 into the end of the week. Upside still remains vulnerable, near term resistance is at 6.8910. USD/CNY started at around 6.8100 on Monday, and saw modest gains over the week. The pair traded around 6.8300 on Friday. For USD/CNY, eyes on the upside, watch for resistance at 6.8650. 1Y NDFs were fairly stable at around 6.8500 during the early part of the week, and climbed up slightly to 6.9200 at last look.
USD/SGD retreated away from the 1.3750 level in the first half of the week, but was countered by bulls thereafter, last seen hesitating at 1.3680. Upside movements in the latter half of the week stem from the PBOC's weakening reference rate, as well as troubled emerging markets after events from Argentina and Turkey. The week ahead could see further gains for pair, taking cue from the 1.3710 resistance.
Indonesia is scheduled to report August inflation on 3rd September, and we expect only a modest acceleration to 3.25% y/y vs. July's 3.18% y/y. A softer base from last year, weaker rupiah and continued elevated oil prices are likely to keep the upside pressures on inflation. Domestic demand likely remained upbeat as well, given the ongoing Asian Games. Inflation still remains near the midpoint of the central bank's target range of 2.5-4.5%, but we are likely to see pressures strengthening further in the second half of the year.
USD/IDR onshore spot was contained below the 14660 resistance level for the first half of the week, with Bank Indonesia possibly stalling further advances. USD was also on the backfoot earlier in the week, but it reversed the declines later in the week. Simultaneously, an emerging markets rout triggered by deepening crisis in Argentina and Turkey as well as President Trump escalating trade war rhetoric saw the pair rally to 20-year highs of 14750 on the last day, although central bank stepped up intervention and brought it back to 14720 at last look. Possibility of emergency central bank meeting is seen as upside pressures are likely to continue into September with clear risk to break of 14750.
USD/INR onshore spot traded with a steady upside bias in the week, even as a slightly dovish Fed Chair Powell and US-Mexico trade resolution resulted in USD declines earlier in the week. Pair broke away the critical 70-mark on the first day of the week, and upside pressures intensified on the last day as EM rout deepened and further escalation in trade war was seen. Pair printed fresh record highs of 71.0000 before central bank stalled further gains. Clear risk to the 71 handle remains, and the pressure for the RBI to tighten at the October meeting is likely to pick up.