Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Chinese boost for regional FX
APAC FX markets were mostly stronger at the end of last week boosted by a solid performance in Chinese shares.
On Friday, the Shanghai Composite and Hong Kong’s Hang Seng both gained 3.6% ahead of a potential People’s Bank of China rate cut today.
In FX markets, the AUD/USD extended a rebound from one-month lows while the NZD/USD climbed from two-month lows.
The USD/SGD turned sharply lower from two-month highs in a potential short-term trend change for the pair.
Most notably, the USD/CNH reversed lower at the key 7.15 level, also producing a short-term trend reversal.
The PBoC’s loan prime rate is seen as likely to be cut from 3.35% to 3.15% in the one-year and from 3.85% to 3.65% in the five-year rate when the Chinese central bank brings down the decision at 9.15am HKT (12.15pm AEDT).
Fed speakers in focus this week
FX markets will be monitoring multiple Federal Reserve speakers this week, with key speeches from regional Fed presidents including Dallas Fed’s Logan, Minneapolis Fed’s Kashkari, and San Francisco Fed’s Daly on Oct 21 and Oct 22.
In terms of economic data, the highlight will be PMI data releases across major economies, with preliminary October readings from Japan (11:30 AEDT Thursday), followed by Eurozone and UK PMIs later that day.
Markets will watch these closely for signs of economic momentum heading into year-end.
The Bank of Canada rate announcement on Thursday (00:45 AEDT) will be another focal point for currency traders – with the BoC mulling a potential 50bps cut – while US housing data through the week could influence USD direction.
Won at lows despite Fed’s dovish turn
Most Asian FX markets have gained versus the US dollar over the last six months, but the Korean won is a notable exception.
The AUD/KRW climbed to three-month highs last week while SGD/KRW reached all-time highs.
Looking forward, Korean exports for last 20 days will be released today. We forecast that over the first 20 days of October, export growth will pick up speed, rising from -1.1% in September to 0.8% y-o-y in October.
Given that daily export growth was quite robust in October of last year, we do estimate a considerable fall in daily average export growth to 4.8% y-o-y in October from 18% in September.
We expect a gradual increase in exports over the next month as the beneficial base effects diminish.
Despite the Fed’s pivot, won’s is the worst performer in APAC FX basket compared to its other Asian counterparts.
In the near term, the USDK/RW faces key resistance at 1373.05.
Asia FX stages China-led recovery
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 21 – 26 October
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
