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EM Asia Insight: The Dollar steady to firmer on geopolitical tensions

Snapshot

  1. The Dollar is on the front foot on upbeat ADP Report
  2. USD/CNY ended yesterday near 7.0200 as the Chinese market will be out until next week
  3. USD/KRW will resume trading tomorrow
  4. USD/IDR on course to challenge the 15,500 level
  5. USD/PHP staying above 56.00 on the expectation of a large BSP rate cut
  6. USD/THB rose sharply to be above the 33.00 level
  7. USD/MYR likely to gravitate beyond the 4.2000 level
  8. USD/INR ended yesterday at 83.82. India is out today for Gandhi Jayanthi
  9. USD/SGD broke above resistance at 1.2940
  10. USD/TWD will resume trading after typhoon Krathon blows over


US Dollar

The Dollar was generally stronger yesterday as the market is still reeling from the Iran missile attack on Israel which kept risk aversion elevated. The Dollar got a second wind during the US session on better than expected ADP Employment Report which came in at 143k against the consensus of 125k. ADP said job creation showed a widespread rebound after a five-month slowdown helped to buoy the Dollar as the data dampened expectations of aggressive rate cuts by the Fed which gave more priority to the labor market when deciding on rates. The Yen weakened notably on rising reacting US Treasury yields and Japan’s new PM Shigeru Ishiba, who was initially perceived as a monetary hawk, has softened his stance on interest rate hikes saying he does not believe it is the right time for the BoJ to raise rates further, dampening expectations of another rate hike in December. The single currency is rapidly losing its appeal as softer EU data has increased the likelihood of an October rate cut with German Economy Minister Robert Habeck stating rate cuts are coming too slowly for his liking. Israeli PM Netanyahu vowed to retaliate against the Iranian missile attack on his country and will keep the markets on tenterhooks as any miscalculation may well lead to a wider war in the Middle East. The commodity currencies were mixed with Aussie the outperformer while the Kiwi was the underperformer as the market is now expecting the RBNZ to cut rates aggressively. See DXY Tech for direction


The Fed funds futures market implied a cumulative rate cut of ~0.699% through calendar '24 from 0.709% on Tuesday. The upbeat ADP Report, which diminished the odds of aggressive Fed easing at their November meeting, helped to lift US Treasury yields across the board, although rising risk aversion tempered the upside somewhat. The US 10-year rose by almost 5 bps to end the session at 3.780 from 3.731 on Tuesday. It started the Tokyo session at 3.788% and will likely trade on the front foot.


China (CNY & CSI 300 and Shanghai Composite Index)

Currency (CNY): The USD/CNY ended yesterday's session close to the 7.0200 level. The Chinese market will be closed until next week due to the National Day holiday. was fixed at 7.0074 by the PBoC today but the pair has since traded to a session high of 7.0173 following the release of some pretty downbeat China data. The NBS Sep Manufacturing improved to 49.8 against the BBG median of 49.4 and 49.1 prior but the Caixin reading was well below the median of 50.5 at 49.3 which is well below the 50 boom/bust level. The Non-Manufacturing PMI paints an even grimmer picture with the NBS number right at the 50.0 level against the median of 50.4 and 50.3 prior while the Caixin reading came in at 50.3 against the median of 51.6. The latest data could well be the reason why the PBoC came out with a slew of monetary policy stimuli to shore up the ailing Chinese economy. The grim Non-manufacturing data makes it imperative that the authorities find a way to draw the consumers back to drive the economy. The China market will be out for 10 days from tomorrow for National DayThus we believe that levels below 7.0000 will not be sustainable in the short term. See USD/CNH for trading strategy


Stock Index: The CSI300 and SSE Comp are up 230 points and ~ 184 points trading at 3,934 and 3,420 respectively. Market breadth is negative with 41% of counters in the CSI300 and 16% of counters in the SSE Comp trading above the 200-day moving average. The Shenzhen and Shanghai indices are down 12% and 8% respectively over the past year. See SHCOMP tech for direction


South Korea (KRW & KOSPI Index)

Currency (KRW): The USD/KRW ended at 1,322.90 yesterday. It is closed for National Foundation Day. Friday's session near the 1,315 level has since bounced back to a session high of 1,323.60 on the back of cooler Korean CPI and weaker PMI manufacturing data. The Korean Sep CPI came in at 0.15% m/m against the BBG median of 0.4% versus 0.4% prior with the y/y at 1.6% against the BBG median of 1.9% and against 2% prior. The Sep PMI Manufacturing came in at 48.3 which is well below the 50 boom/bust level against 51.9 prior indicating a rapid deterioration of the sector. Recent comments by a BOK member Shin Sung Hwan that the central bank needs to shore up the economy will gather credence following the latest data and increase the likelihood of a rate cut by the BOK when they meet on 11 Oct. Thus we still see the pair staying above the 1,300 level until the BOK decision. See USD/KRW tech for trading ideas

Stock Index: The KOSPI is down 10 points trading at 2,581. Market breadth is negative with 39% of counters trading above the 200-day moving average. The Kospi is up ~4% over the past 12 months.


Taiwan (TWD & TWSE Index)

Currency (TWD): USD/TWD The Taiwan Market remains closed due to typhoon Krathon. The missile attack by the Iranians on Israel very early this morning saw risk aversion spiking higher will give the pair a boost when trading resumes. With the China market out for National Day until next week, the pair will likely trade within tight ranges as investors prefer to wait for more reaction from China before committing to fresh positions. Recall the Taiwan-based National Development Council released the Aug Taiwan business indicators which rose 4 points to 39 from 35 prior indicating the economy's robustness. The local currency was also propped by huge foreign inflows into the Taiwanese stock market. The CBC recently left its benchmark rate unchanged at 2% but hiked its reserve requirement ratio by 25 bps to tame the property market despite the other major central banks like the ECB and Fed cutting rates. However, the aggressive easing of monetary policy by the PBoC will sway the CBC to cut rates if the economy slows further.


Stock Index: The TWSE is up 151 points trading at 22,376 amid a fairly positive market breadth with 55% of counters trading above the 200-day moving average. The TWSE is up ~35% over the past 12 months.


India (INR & Sensex and Nifty 50)

Currency (INR): The USD/INR is likely to resume trading today on the front foot as it was closed in observance of Gandhi Jayanthi Day. The spiraling risk aversion and the upbeat US ADP Employment Report will likely see the pair gravitating toward the 83.90 level and beyond. The stronger Dollar and slightly firmer crude oil prices will keep the local currency on the defensive ahead of the US Weekly Claims and ISM PMI Services data later tonight. Local traders and investors are also cautious in case the Middle East conflict widens after Israel's PM Netanyahu vowed to retaliate and singled out Iran’s oil infrastructure as a potential target. This is not good news for India which is a major oil importer. The break of the 83.75 level has seen dollar bulls coming out of the woodwork which will likely push the pair toward the 84.00 level over the coming days. Although the market only sees the Reserve Bank of India cutting rates in Jan 2025, the central bank may surprise the market by cutting rates on 9 Oct when they meet.


Stock Index: The Indian stock market continues to be in bullish mode but will succumb to profit-taking now and then. Today is such a day with the Sensex trading lower by 765 points to 83,509 while the Nifty is down by 221 points to 25,567. We continue to believe that any setback provides good buying opportunities as the Indian equity market remains in bullish mode for now. However, the market breadth remains strong with the two indices, about 77% of counters in the Sensex and 86% of members in the Nifty are trading above the 200-day moving average. The Sensex and the Nifty are trading ~21% and ~25% higher in the same period last year. See Sensex Tech for direction


Indonesia (IDR & Jakarta Composite Index)

Currency (IDR): The USD/IDR chalked up further gains this session reaching a high of 15,280 following the release of cooler Sep Indonesian which came in at 1.84% y/y the lowest headline number since Nov 2021 against the BBG median of 2% while it came in at 0.12% m/m extending its deflationary streak since May, the longest since 1999. The BI which recently cut rates by 25 bps to 6% is now likely to cut rates again when they next meet as food and fuel costs continue to decelerate lower. The local market will remain on edge as Israel has vowed to respond forcefully following the missile attack by Iran. Technically, the psychological 15,000 level will prove to be a tough nut to crack, the pair is likely to gravitate higher over the coming sessions but will likely stay within a 15,100-15,500 range for now.


Stock Index: The JCI is down -41 points at 7,524 and consolidating in the July-August range of 6,998-7,354 amid negative market breadth with only 39% of counters trading above the 200-day moving average. The JCI is up ~7% over the past 12 months.


Singapore (SGD & STI Index)

Currency (SGD): USD/SGD rocketed above the 1.2940 resistance level this morning hitting a high of 1.2946 on buying from local importers and a fund name. The Dollar had been on the front foot since the missile attack by Iran on Israel elevated risk aversion. Traders and investors remained on edge as Israeli PM Netanyahu vowed to retaliate against Iran. The local currency is grossly overvalued against the beleaguered Dollar and thus is likely to be prone to a sizeable correction in the near term. The MAS is not expected to ease rates when they meet in Oct but with inflation likely to fall below 2% due to favorable base effects toward the end of the year, the central may yet spring a surprise in Oct. If they stand pat in Oct they are likely to ease in Jan through the modest easing of the appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) when they meet. This will likely keep the pair supported at 1.2900. See USD/SGD tech for ideas

Stock Index: The island nation has performed creditably in H1, the STI is down 4 points at 3,580 with a neutral market breadth as 50% of counters are trading above the 200-day moving average. The STI is up ~4% over the past 12 months.


Malaysia (MYR & KLCI Index)

Currency (MYR): USD/MYR recovered above the 4.2000 level to hit a session high of 4.2183 this morning buoyed by the better-than-expected US ADP Employment Report which further dampened expectations of a 50 bps rate cut by the Fed when they meet in November. With risk appetite in retreat following the Iranian missile attack on Israel, the pair is likely to stay on the front foot ahead of the US Weekly Claims data tonight and the non-farm payroll data tomorrow. Recall that Israel has already indicated that it will respond imminently which will keep the markets on tenterhooks. The pair will likely trade higher towards the 4.2500 level as the local currency is likely to succumb to more profit-taking activity over the coming days.


Stock Index: The Malaysian stock market is trading down 4 points at 1,634 amid positive market breadth with 60% of counters trading above the 200-day moving average. The KLCI is up ~10% over the past 12 months.


Thailand (THB & SET Index)

Currency (THB): The USD/THB ended the third quarter lower by 12% for its worst showing in more than 25 years. The pair which had traded below the 33.00 level for more than a week jumped 0.8% this morning to a session high of 33.08 on elevated risk aversion. US ADP Employment Report which came in stronger than the consensus also helped to give the Dollar a prop as hopes of another 50 bps by the Fed diminished further. The increasing rhetoric by the government to ease interest rates to help the economy and slow the local currency's rise also led market participants to lock in some profits. Thai officials consider that 35-36 baht to the Dollar is the appropriate rate.


Stock Index: Thai stocks mildly are expected to recover following the appointment of Paetongtarn Shinawatra as the country's new PM alleviating the political turmoil that was evident following the ouster of former PM Thavisin. The SET is trading down 1 po at 1,450 amid a negative market breadth with 26% of counters trading above the 200-day moving average. The SET is down ~15% over the past 12 months, making it Asia's worst-performing market.


Philippines (PHP & PSEi Index)

Currency (PHP): The USD/PHP jumped to a 2-week high near 56.40 yesterday morning as risk sentiment soured following the missile attack by Iran on Israel. The pair is currently trading around the 56.24 level on some selling from exporters and leveraged accounts and will likely stay above the 56.20 level ahead of the US Weekly Claims and ISM PMI Services data. If the Philippines CPI due tomorrow comes in at the BBG median of 2.5% y/y or lower against 3.3% prior, it will pave the way for another rate cut by the BSP on 17 Oct which will limit the pair's downside. If the BSP takes Finance Secretary Ralph Recto's recommendation of a 50 bps cut at the Oct meeting, the 57.00 level beckons. Meantime the pair is likely to trade with a positive bias ahead of the US non-farm payroll data tomorrow and the risk of retaliation by Israel.


Stock Index: The PSEi is up 46 points trading at 7,449 following the BSP decision to cut rates by 25bps amid a positive market breadth with 63% of counters trading above the 200-day moving average. The PSEi is up ~6% over the past 12 months.


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