Risk Aversion Takes Toll On Asia EM FX

Participants were reluctant to take more risk as onshore Asia EM markets digested above-forecast U.S. inflation data released overnight, while concerns over China's outbreak of COVID-19 continued to linger.

• CNH: The PBOC pushed back against yuan depreciation, increasing the appreciation bias in the daily USD/CNY fixing to 49 pips. This provided only modest, fleeting reprieve to the redback, which came under pressure from domestic COVID-19 developments and dovish PBOC rhetoric. Shanghai reported two community cases of the disease, which stopped the three-day countdown to the point when the authorities could ease restrictions. Elsewhere, PBOC Dep Gov Chen noted that the central bank has guided loan interest rates to decline. These comments seemed to drive an upswing in USD/CNH, which took out resistance from Nov 4, 2020 high of CNH6.7745 and rallied to a fresh cycle high.
• KRW: The won was the worst performer in the Asia EM basket amid risk-off sentiment. Spot USD/KRW soared to KRW1,290, its highest point since Mar 23, 2020. Worth noting that North Korea locked down its cities after confirming first COVID-19 cases, which provokes questions over the implications for stability in the Korean peninsula.
• IDR: Spot USD/IDR surged to its best levels in more than a year. Bank Indonesia said Wednesday that core inflation remains manageable, seemingly pouring some cold water on prospects of any front-loaded tightening.
• MYR: Gains registered by the ringgit on the back of a surprise rate hike delivered by the BNM Wednesday evaporated as focus turned to U.S. inflation figures & China's COVID situation. Spot USD/MYR advanced to levels not seen since Apr 2020.
• PHP: Spot USD/PHP surged towards key resistance from PHP52.500 as broader-picture developments outweighed the Philippines' strong Q1 GDP data. The economy grew 8.3% Y/Y in the three months through end-March, beating consensus forecast of +6.8%, extending a streak of better than expected growth readings.
• THB: The baht printed its weakest levels versus the greenback in almost exactly five years. FinMin Arkhom warned that Thailand's economic recovery "may not be fast" despite growing exports, as the critical tourism sector will need some time to return to normal.
• INR: The rupee plunged to an all-time low, depreciating in line with regional trend. Bloomberg sources said that the RBI would be open to bond buying buy may prefer other measures to boost demand for government debt. Focus turns to April inflation figures, due for release in a few hours' time.
  
• HKD: The HKMA bought about HKD1.59bn to defend its currency peg after USD/HKD tested the upper end of its permitted trading range. The rate is still flirting with the HKD7.85 cap as we type.