Asia EM Space Welcomes Prospect Of More Supportive PBOC

China's central bank vowed to play a more supportive role, which helped repair market confidence damaged by the worsening local outbreak of Covid-19. Local developments provided additional incremental support to a number of Asia EM currencies.

• CNH: Offshore yuan took a hit as the PBOC set the mid-point of permitted USD/CNY trading band in fairly close proximity to the sell-side estimate, which was interpreted as a sign of limited readiness to further lean against redback depreciation (reminder that the People's Bank trimmed the FX RRR on Monday). The PBOC's pledge to increase support for the economy via monetary policy tools initially amplified selling pressure on the yuan, but the currency regained poise later in the session as these comments seemingly inspired a broader recovery in risk appetite. In addition, Bloomberg trader sources cited heavy dollar selling by the overseas branches of Chinese banks, which contributed to a sharp pullback in spot USD/CNH, which is poised to snap a five-day winning streak.
• KRW: Spot USD/KRW showed above the KRW1,250.00 mark for the first time since the outbreak of the Covid-19 pandemic, but retreated thereafter as market sentiment improved. South Korean economy remained resilient in Q1, advance readings showed, as GDP grew 3.1% Y/Y against consensus forecast of +3.0%.
• IDR: The rupiah went bid as Indonesian government clarified that the surprise ban on palm oil exports will be limited to certain processed products and will not affect crude palm oil. Regional impetus provided conducive environment for the rupiah's continued recovery from multi-month lows printed on Monday.
• MYR: The rally in spot USD/MYR observed over the last week ground to a halt and the rate moved away from cycle highs. Malaysian Health Ministry prepares to announce looser Covid-19 rules on Wednesday, pending Cabinet approval.
• PHP: The Philippine peso strengthened as BSP Gov Diokno said that the central bank may consider raising its benchmark policy rate in June (his earlier comments flagged potential for a rate hike in the second half of the year). The official said that recent peso depreciation is in line with regional trend and not a concern for Bangko Sentral.
• THB: Spot USD/THB kept pushing higher after clearing key resistance from THB34.000 and completing an ascending bull triangle pattern on Monday. The rate printed its best levels since July 2017.