IDR Gains As BI Outlines Exit Strategy, THB Lags On Deteriorating Covid Outbreak

Asia EM currencies started the week on the front foot, playing catch up with the risk on impetus seen after Asia hours last Friday. However, the return of a cautious mood, at least partly inspired by the spread of the Delta variant of the coronavirus, kept regional FX in check.

• CNH: Offshore yuan registered some gains, despite China's measures against tech companies and a softer than expected PBOC fix. Participants assessed the impact of the RRR cut announced last week, with a PBOC advisor noting that overall liquidity in China's market is expected to remain stable.
• KRW: USD/KRW reopened on a softer footing, but trimmed some gains thereafter. Tighter social distancing rules took effect in the greater Seoul area, while FinMin Hong played down potential for boosting the next extra budget.
• IDR: The rupiah was the best performer in the region, as local players digested recent comments from BI Gov Warjiyo, who suggested that the central bank could launch an exit strategy next year, by gradually reducing liquidity and then raising interest rates in late 2022.
• MYR: Spot USD/MYR trimmed its initial losses, ignoring the release of Malaysia's industrial output, which grew slightly less than forecast in May. Malaysian FinMin Zafrul said that the gov't will lower the growth outlook for this year (likely to around +4.0% Y/Y from +6.0%-7.5%), raise its fiscal deficit forecast, and propose raising the debt ceiling to 65% from 60%.
• PHP: Spot USD/PHP continued to push higher, but struggled to print fresh cycle highs. The peso was the worst G10 performer last week and has remained fragile.
• THB: The baht traded on a softer footing, as Thailand implemented stricter virus countermeasures in highest-risk regions, while Phuket detected its first case of the Delta variant. The BoT said they may have to downgrade their growth forecasts owing to the escalating Covid-19 outbreak, adding that the MPC stands ready to use its policy tools if needed.
• SGD: USD/SGD was rangebound as participants reflected on Friday's comments from Health Min Ong, who signalled that Singapore will take a "middle path" and pursue a more gradual reopening plan than the UK or US.