Week in FX Asia – INR Awaits Indian Prime Minister Modi's Budget

JAPAN
The Bank of Japan and Abe got a boost from the US Jobs report. The US economic recovery gaining traction will help weaken the JPY and makes the inflation target goals easier to achieve. That being said former Japanese currency official Sakakibara, Mr Yen, has said that the currency will hardly end the year above 105. The only scenario where the JPY end above that would be if the US speeds up their tightening plans, but he finds that unlikely.

The USD/JPY broke through the 102 price level this week. The main factor was exogenous to Japan and it was the strong NFP reading from the US. A higher than expected job growth has put the US tapering and tightening back into play as early as spring 2015. The Yen fell on expected higher rate differential to the US.

CHINA
Chinese data was positive this week. China’s official PMI posted an expansion reading of 51 an increase from last months reading of 50.8. Service sector PMI also increased at the highest pace in 15 months. Most of the readings this week support the Chinese ramp up. There has been reform announcements as well that are due to open up China’s Banks to set their own currency rates based on market demand.

Chinese housing was seen as a huge risk as the impressive boom was beginning to look like a bust. Some equity research analyst are now giving an undervalued rating to housing development firms, which could be a signal of an expected turnaround in a 12 month investment horizon.

The CNY continues to depreciate versus the USD. It started the week around 6.1538 and will end the week around 6.1809. The PBOC seems to have shaken out the speculators of the market. The targets for next week could be around 6.20 to 6.25 with market participants waiting for the Balance of Trade data to gauge how much exports have recovered.

INDIA
The majority of Asian currencies tumbled but the optimism surrounding Indian Prime Minister Modi’s budget to be published in July 10 has boosted the INR after the railway plan was announced with a much needed hike to improve the fiscal health of the nation. The USD/INR started the week slightly above 60 but was able to breakthrough the price level and end at 59.66 even after a Thursday with major economic releases.

The majority Modi’s party earned in the elections seems ease the reform path needed for the country, but its still to early to tell if change will indeed come.

Inflation continues to be a concern for the Indian government who announced this week a measure to limit the export of onions through a higher price level. The onion is a stable of Indian food and a much used indicator of inflation among households. Limiting the exports will keep the price lower as droughts have affected crops and there was a price inflation expectation.

Next Week For Asia:

After last week’s calendar was dominated by European and American data this week bring the focus back to Asia. Chinese CPI will be released on Wednesday shedding some light on the inflation situation in China and later in the week the Trade Balance will be published. The Australian employment report will be released on Thursday. Given the importance on employment as an indicator of economic recovery AUD traders will be looking at the release. There is an expected rise of 0.01% from last month’s print. Business confidence in Australia has been increasing since April, but July’s reading will confirm the trend or put some more doubts on the economic recovery.