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CPI Aftereffects

ASIA FX

The release of expectation-beating U.S. CPI data after hours on Friday reverberated in Asia, as regional markets reopened, seeing U.S. Tsy yields creep higher still. Risk aversion fuelled by China's difficult COVID-19 situation exacerbated weakness in Asia EM FX space.

  • CNH: Offshore yuan went offered before stabilising later in the session. The redback ignored a firmer than expected PBOC fix (25-pip deviation from sell-side estimate) as participants parsed COVID-19 headlines highlighting upticks in Shanghai & Beijing case tallies that resulted in partial re-tightening of virus curbs. Spot USD/CNH sits ~260 pips higher after printing a three-week high.
  • KRW: The won was comfortably the worst performer in the Asia EM basket, as fallout from the U.S. & China was amplified by domestic concerns. Early trade data showed that South Korea recorded a trade deficit of $6bn in the first 10 days of June, as a couple of public holidays weighed on exports. Meanwhile, North Korea fired artillery shots, presumably from multiple rocket launchers, amid fears of a potential imminent nuclear test.
  • IDR: Spot USD/IDR crept higher, with the rupiah suffering from higher U.S. Tsy yields. Bank Indonesia's weekly survey showed that inflation may break out of the central bank's target range this month.
  • MYR: Spot USD/MYR took out May 19 high of MYR4.4085 and lodged fresh cycle highs at levels last seen more than two years ago.
  • PHP: Firm resistance from PHP53.000 gave way as spot USD/PHP soared in line with regional trend, ignoring outgoing BSP Gov Diokno's remark that the central bank will scale back its daily purchases of government securities as policy normalises. Separately, incoming Economic Planning Secretary Balisacan suggested that higher inflation may cause 2022 GDP growth to average below the target set by the outgoing administration.
  • THB: Hawkish comments from BoT Gov Sethaput helped the baht recover from lows, after spot USD/THB showed at its best levels in four years. The official tipped hat to the need to withdraw monetary stimulus as inflation rises, testing the central bank's policy mandate. In a break with previously cautious language, he added that "too slow a rate hike is not good," opening the door for the BoT to join the global tightening campaign.

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