RMB likley to rise further in near term

The Chinese yuan’s official midpoint was fixed at close to a seven-month high on Tuesday, at 6.7934 per dollar. In the spot market in Shanghai and offshore yuan market in HK the yuan was down 0.1% and 0.2%, respectively.

“We believe the PBOC will maintain its strong RMB (renminbi) bias to maintain its upside momentum before the launch of Bond Connect, probably due on 1st July” Ken Cheung of Mizuho bank was quoted as saying.

Reuters reports June is often a period of high dollar demand, with foreign firms repatriating profits and domestic firms buying dollars to balance books before quarter end. FX strategists at HSBC said Tuesday that they do not expect another period of “extraordinary stability and low volatility” as seen between March and early May.

“Rather, the authorities appear ready to introduce more two-way flexibility in the exchange rate around recent levels,” the HSBC strategists said in a note.

But, nonetheless, analysts have changed year-end forecasts, expecting the RMB to rise in the near term, reports the South China Morning Post. HSBC and Morgan Stanley have both revised USD/RMB year-end forecasts to 6.9, from 7.1.

May foreign exchange data, which will shed light on the effectiveness of efforts to stem capital outflows, are set to be released on Wednesday.

Emerging market currencies rally, markets watch events on Thursday

“Markets are closely watching the eventful Thursday, with the ECB meeting, U.K. election and Comey’s testimony,” Mizhuho’s Ken Cheung was quoted by Bloomberg as saying. He added the events affect on major FX rates could set direction for Asian EM currencies moving forward.

EM currency moves from Bloomberg:

Philippines

  • Peso drops for first day in five
  • USD/PHP touched 49.370 Monday, which was the lowest since Jan. 6
  • Consumer prices rose 3.1% y/y last month, compared with 3.3% estimated by economists

Malaysia

  • Ringgit climbs to highest since November
  • Investors are returning to Malaysia as they focus on fundamentals such as rising exports and strong GDP growth, says Stephen Innes, senior Asia-Pacific currency trader at Oanda Corp. in Singapore
  • USD/MYR falls 0.1% to 4.2605; reached 4.2550, lowest since Nov. 10
  • If pair falls markedly below 4.00, this may result in some negative exchange revaluation effect on exports, UOB economist Julia Goh wrote in note Monday
  • Overseas investors bought net 215.8m ringgit of Malaysian stocks last week, taking YTD inflows to $2.35b, MIDF Amanah Investment wrote in note Monday
  • 10-year yield little changed at 3.88%

India

  • Rupee steady after rising for four straight days
  • Yield on benchmark 10-year bonds little changed at 6.64% ahead of central bank’s rate decision on Wednesday
  • Foreign holdings of Indian corporate and government notes rose by 15.2b rupees ($236m) on Monday, increasing for an eighth day
  • Sensex index of shares drops, snapping two-day gains

Thailand

  • Baht gains for third day to strongest level since July 2015
  • Central bank Monday announced it is easing currency rules, which did not involve measures to control fund inflows
  • BOT said Monday afternoon it’s easing some foreign-exchange rules to reduce compliance costs for the private sector
  • Reform of foreign-exchange regulation may lead to more liquidity in the market with higher volatility in the spot market expected, says Jitipol Puksamatanan, Bangkok-based strategist at Krung Thai Bank
  • Global investors sold net 3.2b baht ($94m) of local bonds Monday, fifth straight day of net outflow that’s the longest stretch since April 17, according to TBMA data; bought net $14.4m of domestic equities: exchange data
  • Yield on 2.125% govt bond due December 2026 drops 2bps to 2.54%

Indonesia

  • Rupiah steady before the sale of government debt Tuesday
  • Indonesia to offer bonds maturing in 5, 10 and 15 years
  • Also plans to sell 3-, 12-month bills
  • Demand at the auction set to moderate as IDR bonds have rallied, with a flattening bias, since S&P raised Indonesia’s debt ratings last month, according to ANZ
  • Yield on 7% govt bond due May 2027 slipped 1bp Monday to 6.95%
  • Indonesia’s budget deficit for this year may widen to 2.5%-2.7% of GDP, Finance Minister Sri Mulyani Indrawati said
  • Jakarta Stock Exchange Composite Index drops 3%; snapping three-day gains”