FX Pulse

It appears that investors are increasingly lured to the in-vogue FX theme of buying into currencies where central banks have turned suddenly hawkish (more details in a report here). The CAD, EUR and GBP have all broke above key levels against the dollar (1.30 in USD/CAD and GBP/USD, 1.14 in EUR/USD) after their central bankers signaled an unexpected shift towards monetary tightening in June. On the other hand, Asian economies are still likely to hold on to their easy monetary policies awhile longer. As such, Asian currencies which have outperformed in the first half, with most having returned 4% to 6% year till date look set to lose some shine in the second half (our view of “a tale of two halves”).

    The ongoing correction in global technology shares is likely to hurt electronics exports dominant KRW and TWD. On the latter, we have already expressed a bearish recommendation (see next page). The Philippines peso, PHP looks poised for further setback, especially if the situation in Malawi city is not

    resolved promptly. In fact, the NDF points have spiked in recent days to multi-month highs, pressuring on the currency. In all, a resumption of the USD/PHP (spot: 50.54) towards fresh cycle highs of 51.00 looks likely in the next couple of months. The Indian rupee, INR which was one of the top recommendations by most banks in the second quarter, have seen gains stall at 64.00 per dollar. Our economist expects incremental dovish tones from RBI in the months ahead as aggregate demand from India slows. As such, a break above 65.00 in USD/INR would not be surprising.

    It’s not all doom and gloom for Asia. For now, SGD and CNY have correlated well with moves in G-10. USD/SGD broke below 1.3800 overnight and looks set to test the key June- FOMC’s day low of 1.3709. USD/CNY trades at 6.7660, levels last seen during November’s U.S elections. A key support to look out for in the upcoming sessions is at 6.7500.