The week ahead should be an interesting one for Asian financial markets, with the highlights being China’s 19th National Congress, the latest numbers for Chinese economic growth, the Bank of Korea’s monetary policy meeting and Japanese trade data.
Further to that, and to the events outlined below, investors should look with care to Federal Reserve speakers on Sunday and Wednesday (Asian time zones) and to Tuesday’s US data for industrial production, all of which may influence risk appetite and, of course, the dollar side of Asian FX pairs.
With the unsurprising exception of the Philippine peso – Asia’s worst performing currency of the year – Asia-Pac’s most actively traded currencies made gains against the US dollar on Tuesday.
Although limited, gains were somewhat easy to come by as risk appetite returned after the President of Catalonia, Carles Puigdemont, held off on formally declaring the region’s independence from Spain, and by doing so, stepped back from what had looked like the precipice of a constitutional crisis in Europe’s fourth largest economy.
The US dollar lost momentum towards the end of the week but gains between Monday and Wednesday were sufficient for it to end the week higher and, more importantly, to snap a six-month losing streak.
The US Dollar Index’s gain of 0.5% in September was hardly spectacular but its 2.3% reversal from a thirty-two-month low on September 8th is commendable.
Currencies in the Asia-Pacific region fell against the US dollar on Thursday morning after the Federal Reserve signaled that it would raise interest rates again this year and would begin shrinking its balance sheet in October. The Fed funds rate was left unchanged at its current range of 1–1.25%.
Although the majority of economists had expected this would be the Fed’s position, for some, doubt had crept in following hurricanes Harvey and Irma.
India’s experiment with “demonetization” has failed according to figures from the country’s central bank.
In a shocking decision on November 8th of last year, India’s government demonetized all 500 and 1000 rupee notes (worth USD 7.78 and USD 15.56 respectively), rendering 86% of currency in circulation worthless. Indians were given just four hours’ notice by way of a live, unscheduled television broadcast that only sub-500 rupee notes could be used as legal tender.
As expected by roughly seventy percent of economists, the Reserve Bank of India (RBI) cut its key interest rate to 6% from 6.25% at Wednesday’s meeting. Four of the six members of the RBI’s Monetary Policy Committee voted for the change. Interest rates have not been this low in India since 2010.
Of fifteen economists surveyed by Mint, eleven expect India’s central bank, the Reserve Bank of India, to cut interest rates by 25 basis points at today’s meeting. Of a further fifty-six economists polled by Reuters, forty expect the same. With no unanimous prediction, this makes rupee volatility highly likely before and after the meeting.
Dutch bank ABN Amro have this week upgraded their forecast for the Indian rupee. The bank now believes that the year will end with the rupee buying 0.0155 US dollars (USD/INR 64.5), and while this is not a significant increase on the rupee’s current valuation at 0.0154 (USD/INR 65.0), it marks a significant upward revision to the bank’s previous forecast of 0.0148 (USD/INR 67.5).