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Jeremy Cook
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Jeremy is one of the UK’s leading voices on foreign exchange, and you’ll regularly find him on television and across the national media giving his unique, thoughtful insight. He has made regular appearances on BBC News, BBC Radio 5 Live and Newsnight, as well as in leading blogs and newspapers. Having started out at HSBC in the City of London, Jeremy decided on a move into currency after a brief stint in private equity advice. He joined World First in 2007 as a Corporate Dealer when the Corporate Desk at World First consisted of only five people. He took on the role as World First's Chief Economist in 2010.

World First

September 21, 2017

Outlook of ASEAN Currencies in the Next 6 - 12 Months

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While not as volatile as the stock market, currencies constantly fluctuate and with enough research, can yield great returns, especially for many of us who work away from home and find ourselves constantly remitting funds. Here's our resident expert Jeremy Cook's take on the outlook of ASEAN currencies for the next 6 - 12 months:

CHINESE YUAN

If there was one currency pair that was in the crosshairs of a newly elected President Trump, it was USDCNY. The inability for the Trump White House to advance its policy agenda on healthcare, taxes, regulation and trade however has almost entirely cancelled out the dollar’s politics inspired rise however; we were, perhaps naively, unprepared for how chaotic a Trump Presidency could actually be.

In one of his many policy U-turns, President Trump told the Wall Street Journal that he will not brand China a ‘currency manipulator’ as well as commenting that the USD was too strong and “partially that’s my (Trump’s) fault because people have confidence in me. But that’s hurting – that will hurt ultimately".

While North Korea remains a geopolitical tinderbox we see the chatter on currency manipulation being a non-factor. To be fair, it is not the Chinese who should be worried by these moves however with both Korea and Taiwan seen as more earnestly interfering with their currencies.

Of course not all of the weakness in USDCNY has come from weakness in the US dollar as there have been notable forces on the yuan as well chiefly that monetary conditions have tightened within the country in an effort to press down on an increasing credit bubble.

The first half of the year saw the first downgrade to China’s debt pile for the first time since 1989. The ratings agency took action over fears over the amount of debt within the economy and the burden that will mean for the finances of the 2nd largest economy in the world.

Any increased stimulus will stop the yuan from accelerating too much but we see that as a very low possibility event through the 2nd half of 2017. As we can see from the genesis of where the market believes that USDCNY will continue to trade the high side continues to remain increasingly optimistic with the median estimate still around the 7.00 level. We see that as about right with a cap in at about 7.08.

INDONESIAN RUPIAH

2017 has so far been a very stable year for the Indonesian rupiah and we think that will continue given investors’ desire for yields alongside low political risk. Similarly, the effect of commodities on currencies seems to have lessened in the past few months and hence its ability to hold up despite weakness in oil markets.

The Bank Indonesia – the central bank – is a big fan of stability in its currency and while the IDR will remain in demand and the economy is likely to stay robust we do not see too much of an appreciation bias for the rupiah as a currency.

INDIAN RUPEE

Large negative swings in emerging market currencies following the election of Donald Trump were widely predicted but never materialised. India and its rupee however was always thought to be one of the most resilient EM currencies and such it has proved. India has remained relatively insulated as, for all its size, it remains a relatively closed economy given capital controls on the currency and governmental oversight of inward investment while also enjoying a high savings ratio and low level of external financing.

We expect this to continue with low volatility in global markets making carry trades whereby investors borrow low volatility currencies at low interest rates for example JPY or the SEK, sell them and buy higher yielding currencies such as the INR, more popular.

We had forecast at the beginning of the year that USDINR would trade between 64.00 and 68.00 while so far entirely correct, there is the chance that USDINR spends some time below 64.00.

PHILIPPINE PESO

Our beginning of year expectations were for USDPHP to trade between 48-50 and for the most part that has been correct. In the past few weeks however sentiment has turned negative on the peso and as come into the 2nd half of the year it is at its weakest level against the USD since 2006.

Sentiment has shifted more on a relative than absolute basis against the PHP. Low volatility markets have promoted the profitability of carry trades – borrowing money in low interest currencies like CHF, SEK and EUR and investing in higher yielding currencies mainly in emerging markets. PHP is not a chosen beneficiary of these flows however due to concerns over the Duterte administration and its low relative interest rates (3% vs 6.5% in Indonesia and 6.25% in India) and therefore is being overlooked from an investment point of view.

Carry trade enthusiasm can turn on a pin head however and the moves elsewhere could easily see the selling pressure on the PHP lessen. There is always the possibility that the Central Bank of the Philippines raises rates; we maintain our guidance from the beginning of the year that while this may not take place until the end of the year, any move in Philippine bond yields that maintain a decent spread over their US counterparts will allow for some support for the currency.

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Disclaimer:
This editorial is strictly based on publicly available economic data and is not intended to express the political views of World First Pte. Ltd. 

These comments are the views and opinions of the author and should not be construed as advice. You should act using your own information and judgement.

Whilst information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed.

All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

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ABOUT THE AUTHOR
Jeremy is one of the UK’s leading voices on foreign exchange, and you’ll regularly find him on television and across the national media giving his unique, thoughtful insight. He has made regular appearances on BBC News, BBC Radio 5 Live and Newsnight, as well as in leading blogs and newspapers. 

Visit his author bio page to find out more about Jeremy and connect with his social profiles.

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