Asian central banks are ‘leaning against the wind’ – OCBC

Most Asian FX are trading near their respective lows against the US Dollar (USD). USD/KRW is near 1450, USD/CNH back above 7.30, USD/JPY is back above 157, USD/INR at record highs of above-85 levels, while most Asean FX, including PHP, IDR, TWD are trading 4-5% weaker (on YTD terms), OCBC’s FX analysts Christopher Wong notes.

Central banks in the region have stepped up their rhetoric

“BI said it will guard the IDR boldly to build market confidence, BSP said that policymakers are watching the PHP drop closely and has stepped up intervention in the FX market. Japan’s Finance Minister Kato and Currency chief Mimura said authorities will take appropriate action if there are excessive moves in currency markets.”

“In China, policymakers continue to set the fix steady at under 7.20 (last set at 7.1901 vs. 7.1911 yesterday despite USD’s rise). Fixing pattern suggests that PBoC is doing whatever it takes to not only restrain the RMB from overweakening but also to hold it steady in the interim. South Korea said it will ease the cap on banks’ foreign exchange forward positions by 50% to boost inflows and address demand and supply imbalances in the local currency market.”

“It can be challenging for policymakers to go against a strong USD trend. Intervention in such an environment can only slow the pace of currency depreciation. Despite that, central banks may still have to use a mix of verbal, policy and actual intervention tools to slow the pace of currency depreciation.”