Week in FX: Asia Oct. 9-14

Friday’s strong North American data is providing the backdrop for a more supportive risk environment. But, its the G20 meeting that brings hope and optimism to resolving the Euro-zone crisis. Let’s hope investors will be full of the same optimism come Monday morning.

In reality, until there is a clear resolution to the European situation, the risks to global growth remain to the downside. France and Germany believe that they are moving closer on a comprehensive package to stabilize the Eurozone. The package includes maximizing the force of the EZ bailout fund and finding a solution for Greece.

Some of the currency swings have investors believing that a ‘stability road map will be implemented soon’. Both France and Germany hold the key to resolving the all important question of how to boost the EFSF fund without demanding further contributions from other nations. It will be an interesting weekend of debates.

ASIA

• CNY: There is speculation that that China’s domestic sovereign wealth fund, Huijing, is buying shares of the four-largest Chinese banks. Similar actions before boosted risk.
• AUD: NAB business confidence bounced, but remained weak in September. The forward looking confidence index rose sharply from -9 in August to -2 as the more coincident business conditions index bounced to 2 from -3 in August.
• JPN: Current account surplus surprised strong in August at Â¥652.6b (SA) and down from Â¥752.5bn in July. The trade balance deteriorated to a deficit of Â¥199.2b (largest in three-months).
• NZD: Credit card spending grew +0.4%, m/m in September, less than expected. Market was looking for a +1.1% growth.
• MYR: IP jumped +2.6%, m/m, in August, much stronger than expected. Much of the growth was due to mining (+6.1%) and manufacturing (+2.1%).
• PHP: Exports fell -15.1%, y/y, in August, much weaker than the -6.1% forecasted. This is driven by the -30.6%, y/y, fall in electronic exports. The weak manufacturing sector and GDP growth suggest that the BSP will likely keep the PHP low.
• CNY: PBoC ignited a bout of dollar buying by fixing USDCNY higher mid-week. It is suggested that China was responding to the US Senate’s passage of a bill that would penalize China for its currency’s undervaluation.
• AUD: Westpac consumer confidence index rose +0.4%, m/m, in October to 97.2. It’s being supported from recently lower mortgage rates.
• NZD: REINZ house price index rose +1.7%, m/m, in September, bringing house prices close to the previous peak in November 2009.
• CNY: PBoC fixed USDCNY higher for the second consecutive day, prompting some upside pressure on other USD-Asia pairs.
• CNY: Export growth slowed more than expected to +17.1%, y/y, in September from +24.5%. Import growth remained strong, leading to a narrowing of the trade surplus to +$14.5b from +$17.8b in August. The import strength indicates that Chinese domestic demand growth remains robust.
• AUD: Employment rose +20.4k last month, greater than the expected +10k gain, and reversed two months of declines. Unemployment rate eased to +5.2% from +5.3% and kept the 2011 trend steady.
• NZD: Kiwi Business PMI fell to 50.8 in September from 52.7 (weakest reading in six-months).
• KR: BoK kept rates on hold at +3.25%.The communiqué stated that downside risk to growth exceeds upside risk due to the weakness in US growth and risk of the European debt crisis spreading. Policy makers also indicated that inflation expectations remain high and core inflation is likely to sustain its rising trend.
• SGN: SGD is outperforming G10 and EM currencies after the MAS surprised more hawkish than expected. MAS announced a slower pace of SGD appreciation and kept the center and width of its policy bands for the SGD nominal effective exchange rate (NEER) unchanged, but lowered the slope of the appreciation path. Their decision will promote SGD volatility.
• CNY: Inflation remains elevated, easing slightly to +6.1%, y/y, last month from +6.2%. Inflation may be peaking due to tighter credit conditions. Do not expect the PBoC to ease any time soon.
• CNY: Other data shows that credit growth and FX reserve accumulation slowed in September. New loans fell to +CNY470b from +CNY548.5b and the M2 money supply growth fell to +13%, y/y from +13.5%.

EUROPE WEEK IN FX

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