J.P. Morgan On Asia FX Rebound
The US bank weighs in on the recent Asia FX rebound. Softer US data suggests being on the sideline from a long USD standpoint, but it notes late cycle extension is still likely in play over the medium term. See below for more details.
J.P. Morgan: "Asia FX outperformed as low yielding funders squeezed higher: Another strong week for the FX complex as headwinds turned to tailwinds and new catalysts continue to build. Turning data in the US drove a rally in the front end, squeezing out shorts in low yielding funders where valuations looked cheap relative to YTD shocks from energy and financial conditions. The THB and KRW were top performers in the region, having been the most heavily exposed to JPY weakness or energy prices in our recent analysis. MYR and TWD also outperformed their historical betas, while SGD, IDR and INR were more in line, having been the popular longs for Asian investors. The PHP was a notable outlier, trading weaker on the week amid a FX rally. As we have argued, the vacuum of remittances leave the peso vulnerable amid a seasonally weaker CA, despite the improvement in the trend. Having cleaned out our strategy book - which leaned long USD or RV with positive residual USD betas - we await better levels to re-engage with our more medium term views. The recent softening in the US data warrants a tactical sidelining of USD longs, but mixed signs around activity and a seeming re-acceleration of inflationary pressures YTD in both the data and commodity prices suggest the late cycle extension is still in play. The only headwind that is certainly passed is dividend outflows, particularly in Korea and Thailand where payments are concentrated in Apr and May."