Sentiment Sours On Lead From China

China headline flow set the tone for the region, resulting in the unwinding of initial risk-on moves. The Asia EM FX space started the session on a firmer footing, as Shanghai authorities eased some COVID-19 restrictions and the PBOC trimmed the mortgage rate for first home buyers to 4.40%. Sentiment soured as the PBOC disappointed some participants by failing to take action on the MLF front (both in terms of the interest rate and net injection) and ending a streak of nine firmer than expected yuan fixings. This was followed by a set of below-forecast Chinese economic activity indicators, which failed to meet even the already low expectations.

• CNH: Offshore yuan reversed initial gains and retreated, driven by aforementioned dynamics. The surprise annual contraction in China's industrial output may have spooked regional currency bulls, owing to its correlation with the ADXY Index over the recent months.
• KRW: Spot USD/KRW worked its way through opening losses and is back to virtually neutral levels. The China impulse diverted attention from domestic affairs, with South Korea's top economic officials pledging coordinated response to any instability in the FX market. Meanwhile, BoK Gov Rhee refused to rule out an outsized 50bp rate hike at this stage.
• PHP: China headlines prompted the peso to swing to a loss, even as BSP data showed that the Philippines' overseas cash remittances grew faster than expected in March.
• Markets in Singapore, India, Indonesia, Malaysia and Thailand were closed.