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Taiwan Rhetoric Remains High, But Market Impact Limited So Far

ASIA FX

Taiwan rhetoric remains high, but market impact has been limited so far. Focus is now likely to shift to China military exercises held around the island over coming days. CNH has rebounded, while TWD has been steady. SEA FX is weaker, in part due to higher US yields.

  • CNH: USD/CNH is lower on the day, dipping below 6.7600 before support emerged. The Caixin services PMI comfortably beat market expectations (55.5 versus 53.9 expected). Rhetoric around Taiwan remains high, while further export related bans were announced. Still, the market impact has remained fairly limited.
  • KRW: USD/KRW spiked to 1315 in early trade but once again found selling interest around this level. Onshore equities are higher (+0.70%), while South Korean FX reserves rose modestly in July (first gain since February of this year).
  • TWD: Spot USD/TWD has traded a tight range. The pair sits just above 30.0 on a spot basis. The authorities stated that aren't concerned with the FX trend and that FX reserves remain ample. Local equities are lower but only by -0.40%. Curbs on Taiwan exports of sand, fish and fruit products to China will impact onshore businesses, but Taiwan has a very large trade surplus with China.
  • INR: USD/INR is up slightly in early trading. The pair was last 78.76. The services PMI eased to 56.6 in July from 58.2 but remains comfortably in expansion territory. The Indian Finance Minister was the latest to come out in support of the rupee, stating the currency hasn't collapsed and is outperforming peers.
  • IDR: Spot USD/IDR has crept higher, with the move being a function of the latest adjustments to Fed rate-hike expectations. The pair rose +24.5 figs to 14917. Indonesia's 5-year CDS premium has widened 16bp this morning and now sits at 122bp. It has recouped more than a third of its recent pullback from cyclical highs.
  • PHP: Spot USD/PHP trades +0.17 at PHP55.603. BSP Gov Medalla suggested that inflation may have peaked in July and there is a "better than 50/50 chance" that it will return into the target range next year (reminder that the next monthly inflation report is due Friday). Medalla reiterated familiar stance on the upcoming monetary policy meeting, noting that it will likely see a 25bp or 50bp rate hike.

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