2H2020 FX Outlook focus/global...2H2020 FX Outlook: Watching the post-COVID recovery 06 Jul 2020...
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2H2020 FX Outlook: Watching the post-COVID recovery 06 Jul 2020 Treasury Research & Strategy Global Treasury Terence Wu (+65) 6530-4367 [email protected] 1
Transcript of 2H2020 FX Outlook focus/global...2H2020 FX Outlook: Watching the post-COVID recovery 06 Jul 2020...
2H2020 FX Outlook: Watching the post-COVID recovery
06 Jul 2020
Treasury Research & Strategy
Global Treasury
Terence Wu
(+65) 6530-4367
1
Key Themes
1. Elevated cross-asset correlations: Cross-asset correlations remain elevated in the near term. This suggest that the
market is still very much running on risk dynamics (which, in turn, is determined by top-down global factors) for now.
2. Pace of recovery after COVID-19: This would be the main FX driver into 2H 2020. The divergence between the
economists (who continue to warn on uncertainties) and the market (which is relatively sanguine) is distinct. Overall,
the risk of disappointment if actual growth does not keep up with market expectations is non-negligible.
3. Major central banks’ balance sheet expansion: Balance sheet expansion by major central banks fundamentally
keeps global sentiment supported, and puts a floor on risk assets in the near term. Even though the coordinated nature
of the expansion prevents it from being the main FX driver, we still expect the relative size and pace of the respective
asset purchase programmes to have an impact on the crosses.
4. Political risks: The US elections will be front and centre later in 2H 2020, as the policy parameters firm up. The USD
may suffer from heightened political risk premium in the run-up, but this may be diffused if other geopolitical issues,
such as Sino-US tensions, gets fanned as part of the campaign.
5. Lack of directional lead for USD-Asia: The RMB remains closely tethered to broad USD prospects for now, leaving it
underperforming the rest of the Asian currencies. Overall, there seems to be a lack of coherent directional driver for
USD-Asia for now, with North Asia reactive to global risk gyrations, but South Asia very much running on its own
domestic drivers.
2
3
Summary
G-10 FX:
• Expect the broad USD to stay implicitly heavy early
in 2H 2020, as overall risk sentiment remains
supported despite being periodically shaken out by
risk-off episodes.
• However, do not rule out a turn in USD prospects
later into 2H 2020, especially if the global recovery
turns out weaker than market expectations, and
sparks a more sustained risk-off tilt. However, this
dynamic may be muddled by the US elections.
• The EUR appears supported for now, with economic
data outperforming expectations. However, stay
skeptical about how sustainable this persistence will
be. Among the cyclicals, prefer using the AUD to
express any sustained risk-on as the RBA remains
the most bullish. JPY should stay locked in by
divergent drivers
EM Asia FX:
• USD weakness should keep USD-Asia broadly
heavy early in 2H 2020. However, the longevity of
this implicit heaviness will again be dependent on
the sustainability of the growth recovery.
• Back-end real yields have spiked due to the
capitulation of price pressures. NEERs are mostly
only marginally softer. Both developments does not
engender the loose monetary conditions that support
growth. Indeed, the outperformance in Asian data-
prints are fading. There is room to cautious going
forward.
• Overall, there is a lack of coherent driver across
USD-Asia. North Asia remains reactive to global risk
dynamics, but South Asia appears to run on their
own domestic factors for now.
Macro: Recession (still?) underway in the US
• Macroeconomic indicators have
evolved in a fashion that is
consistent with a US recession.
There is, however, a divergence
between the economist’s outlook
and the market’s outlook on the
pace of economic recovery. The
market outlook has been, and
remains, sanguine (see p. 9), but
economists, led by central banks,
continue to highlight the
uncertainties ahead for global
economies.
• This leaves room for potential
market disappointment as we head
deeper into 2H 2020.
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Initial Jobless Claims
NBER defined recession US Initial Jobless Claims (6m change)
'000s
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US Treasury yield curve
NBER defined recession 10Y-3M UST yield 10Y-2Y UST yield
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ISM Man. and non-Man Indices
NBER defined recession ISM Man. PMI ISM non-Man. PMI
3mma
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100
-22-20-18-16-14-12-10
-8-6-4-202468
1012
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-85
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-87
Jan
-89
Jan
-91
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-93
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-95
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-97
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-99
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-01
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US Leading Index
NBER defined recession US Leading Index
yoy%
4 Source: Bloomberg, OCBC
Macro: Worst likely over, pace of recovery in question
• Most economic indicators appear to
have bottomed between April and May,
with a sharp bounce higher in the June
readings. In absolute terms, indicators
have still not recovered to pre-COVID-
19 levels.
• Going forward, the resurgence of
COVID-19 cases in the US put to
question the reopening process, and by
extension, the growth recovery. The
sinking feeling may not be so
eminent now, but the global
economy is definitely not out of the
woods yet.
-0.5
0.0
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1.0
1.5
2.0
2.5
3.0
3.5
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
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Jul-1
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Oct-
17
Jan-1
8
Apr-
18
Jul-1
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Oct-
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Jan-1
9
Apr-
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%
Global 10y Breakevens
US GE JP UK CA AU
30.0
35.0
40.0
45.0
50.0
55.0
60.0
Jan-07
Jan-08
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Jan-10
Jan-11
Jan-12
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Jan-15
Jan-16
Jan-17
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Jan-19
Jan-20
6mma
Global PMIs
US PMI JP PMI EZ PMI EM PMI
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
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1
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Jan-1
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Jan-1
6
Jan-1
7
Jan-1
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Jan-1
9
Jan-2
0
12m %chg
Global CLIs
US CLI EZ CLI JP CLI Asia: Major 5 CLI
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
-80
-60
-40
-20
0
20
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60
80
100
120
Jan-0
7
Jan-0
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Jan-0
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Jan-1
0
Jan-1
1
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3
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0
% yoy% yoy
OECD Inflation
UN FAO Food Price Crude OECD Headline inflation (RHS)
5 Source: Bloomberg, OCBC, OECD
Macro: So why so much optimism?
-80
-60
-40
-20
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40
60
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
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Jan-2
0OCBC US Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
-80
-60
-40
-20
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20
40
60
Jan-0
8
Jul-0
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Jan-0
9
Jul-0
9
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Jul-1
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Jan-1
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Jul-1
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Jan-1
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Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
OCBC EZ Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
-80
-60
-40
-20
0
20
40
60
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
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Jul-1
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OCBC Asia Macro Surprise Diffusion Index
3M MSI
+ve data surprises
-ve data surprises
• The deep troughs in the Macro Surprises Indices (MSIs), which compares actual data outcomes against consensus
estimates, seen back 2008 have not materialized this time. The market has interpreted this as the global economy
being less impacted by COVID-19 than expected. However, the other interpretation is that this reflects consensus
estimates that are overly weak, which is not inconceivable in the context of an economic shutdown. The fact remains
that the actual data-prints remain very depressed by usual standards, and the evidence points more to a
shallow, gradual recovery than a rapid pick-up in economic activity.
• Comparing across regions, note that the Asian MSI has not performed as well as the US and Europe MSIs. This
suggest that Asian data-prints are coming in softer than expected, and the pace of recovery may be lagging
the US and Europe.
6 Source: Bloomberg, OCBC
Macro: Smart uptick for Asia, but not out of woods yet
• Manufacturing PMIs in South Asia saw a rebound in May and June – not surprising given the heavily depressed prints
in April. However, most countries remain in contractionary territory. Relative laggards like Indonesia are still sub-40,
while Thailand and South Korea are still sub-45. Positives can be drawn from China, where the official and Caixin
prints are now back in expansionary zone.
• This suggests that the manufacturing outlook for 2H 2020 have improved, and the extended trough seen in 08/09
looks likely to be be averted. Nevertheless, manufacturing PMIs in most Asian economies are still below its recent
averages, and a distance from the expansionary zone. Much too early to be overly optimistic at this stage.
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Asian PMIs (monthly)
EM PMI CN SK TW SG
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Jan-1
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Jan-1
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Jul-1
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Jan-1
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Jul-1
9
Jan-2
0
Asian PMIs (monthly)
IN TH MY PH ID
84.0
86.0
88.0
90.0
92.0
94.0
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100.0
102.0
104.0
Jan-0
5
Jan-0
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Jan-0
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Jan-1
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0
Asian CLIs
Korea Indo Japan China Asia: Major 5 CLI
7 Source: Bloomberg, OCBC, OECD
Macro: Trade sector in Asia may not have bottomed
• Early in the crisis, export prints in
selected Asia economies (such as
Singapore and Taiwan) had been
surprisingly resilient, in part due to
stockpiling by China. However, expect
this dynamic to fade as we head into
2H 2020. Elsewhere, Europe and US
have reopened their economies, but
whether their external demand returns
quite as strongly is still an open
question. Thus, a speedy recovery in
the export sector may not be taken
for granted (see p. 23).
• CPI prints have also shown significant
easing in price pressures, with no signs
of recovery as yet. This highlights the
soft recovery of economic activity in
Asia. -1.0
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% yoyInflation: Asia vs. OECD
Asia (ex JP, CN) Asia (ex JP, CN) Core OECD
-3.0
-1.5
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Ap
r-0
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-07
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08
Ap
r-0
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-10
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11
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r-1
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r-1
5
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China inflation
Headline CPI Core CPI
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
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1.0
1.5
2.0
Jan-0
8
Jul-0
8
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9
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9
Jan-1
0
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0
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1
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Jan-2
0
Z-score(3mma)
Asian aggregate (Exports)
CN Asia (ex-CN, JP)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Z-score(3mma)
Asian aggregate (Imports)
CN Asia (ex-CN, JP)
8 Source: Bloomberg, CEIC, OCBC
Episodic jitters, but risk-on bias prevails in the near term
• The reopening of economies, better
than expected economic data and
central bank balance sheet
expansion combine to be a strong
driver for risk dynamics. However,
this consensus is starting to look
fragile, challenged by the
resurgence of virus cases in the US.
The market have yet to fully
resolve the ongoing positives
with emerging risks, leaving the
market prone to episodic jitters.
• The current bias remains for a risk-
positive tilt. It remains to be seen if
sufficient negativity can accumulate
to generate a more sustained risk-
off tilt, but for now, the risk-off
camp is still swimming against
the current. -3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
Jan-1
5
Jul-1
5
Jan-1
6
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6
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7
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8
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Jan-2
0
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0
Emerging Market Bond Index Plus
RISK OFF
RISK ON
Z-score
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
MSCI AP ex. JP
RISK OFF
RISK ON
Z-score
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
FX Sentiment Index
RISK OFF
RISK ON-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
VIX
RISK OFF
RISK ON
9 Source: Bloomberg, OCBC
Viewing FX in relation with other asset classes
• FX seemed to lag other assets in its reaction to COVID-19, both in terms of speed and extent of reaction. The spike in
broad USD did not happen until March, and the extent of the spike is muted relative to 08/09 (and also in comparison
with the relative movement of the other asset classes). The subsequent recovery, perhaps somewhat slow initially, has
also very much caught up with others.
• Overall, this perhaps suggest that the FX space remained relatively sanguine (or complacent?) throughout the
whole COVID-19 episode. Indeed, the FX space may have inherently factored a relatively swift recovery in 2H
2020. This leaves the door open to potential snap-back if the global economy fails to delivery as expected.
30
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Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
USD WTI (Inverted) UST 10y S&P 500
EUROSTOXX 50 MSCI EM BBG Commodities
Index: 1 Jan = 100
-90.00
-80.00
-70.00
-60.00
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
S&P 500
USD WTI(Inverted)
EUROSTOXX50 MSCI EM
BBGCommodities UST 10y
Peak-to-trough % change: 08/09 GFC vs COVID-19
08/09 COVID-190.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
UST 10y
BBG Commodities
EUROSTOXX 50
MSCI EM
USD WTI
S&P 500
% retracement from March lows
%; as of 26 Jun
10 Source: Bloomberg, OCBC
Global yields: Front-end anchored; slight steepening bias
0.30
0.80
1.30
1.80
2.30
2.80
3.30
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%US 10y yield
-0.90
-0.60
-0.30
0.00
0.30
0.60
0.90
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%EZ 10y yield
0.50
0.80
1.10
1.40
1.70
2.00
2.30
2.60
2.90
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%AU 10y yield
-0.30
-0.20
-0.10
0.00
0.10
0.20
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%JP 10y yield
0.00
0.30
0.60
0.90
1.20
1.50
1.80
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%UK 10y yield
0.30
0.80
1.30
1.80
2.30
2.80
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%CA 10y yield
• The macro recovery theme takes a back seat to monetary accommodation here. With easing unabated, front-end
yields will likely remain anchored into 2H 2020. Back-end yields may retrace higher, especially if the macro
recovery gains even more legs in 2H 2020, although the extent may be limited relative to other asset classes.
This leaves a slight steepening bias on the curve. The corollary to that is that any further downward drift in yields may
also be limited in the event of macro disappointment into 2H 2020.
11 Source: Bloomberg, OCBC
USD prospects tied to risk dynamics in the near term
• On a near term basis, the correlation between the broad USD and the other asset classes remains high. This
correlation is especially sticky between FX and equity markets, forcing us to take cues from the equity space. Overall,
the strong correlations suggest that the market is still more focused on global issues – be it growth, virus or Sino-US
tensions.
• The USD’s safe haven properties are on show in the near term, outshining even the JPY. Near-term pervasiveness
of risk-on, as shown in the through our FX Sentiment (FXSI), keeps the USD depressed.
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
Mar-20 Apr-20 May-20 Jun-20 Jul-20
2-month correlation with USD TWI
UST 10y yield S&P 500 STOXX 50 MSCI EM BBG Comm
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
108
109
110
111
112
113
114
115
116
117
118
Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
USD WTI FX Sentiment Index (RHS)
z-score
Risk-off
Risk-on
12 Source: Bloomberg, OCBC
Macro trajectory will be the main determinant for the USD
• The worst is likely over, but a swift and steady recovery cannot be
taken as the base case – this fundamental view governs our view of
the USD in the 2H 2020. The lack of a strong conviction over the
growth path over 2H precludes a structural weak USD stance.
• As highlighted in p. 6, a relatively swift recovery may have been
priced in by the FX space. Disappointment relative to market
expectations cannot be ruled out, especially with the virus situation
in the US deteriorating, and reopenings put on hold.
• One argument is that the US situation will remain a domestic
negative for the USD. We disagree. Any jitters in the US is likely
to translate into a global risk-off event through the equity
channel, especially if cross-asset correlations remain at
elevated levels. This could quickly sap market optimism, and
compel a reversion back to the haven-driven, strong USD stance.
13
-15
-10
-5
0
5
10
15
20-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Ja
n-1
4
Ja
n-1
5
Ja
n-1
6
Ja
n-1
7
Ja
n-1
8
Ja
n-1
9
Ja
n-2
0
6mma %yoy(inverse scale)
%yoy
OECD Leading Indicator USD Trade Weighted Index (RHS)
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0-40
-30
-20
-10
0
10
20
30
40
50
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
6mma % yoy(inverse scale)
% yoy
Global Man PMI USD Trade Weighted Index (RHS)
Source: Bloomberg, OCBC, OECD
Central bank dynamics may affect crosses
• The coordinated nature of the balance sheet expansion at the start of COVID-19 episode by the major central banks
limits its impact as a broad USD driver. However, the relative size of the asset purchase programme (APP) should
have an impact on the crosses on a structural basis. In particular, the AUD may outperform other cyclicals
(regardless of risk dynamics) as the size of the RBA’s APP is relatively small, and it is one of the first to pull back
on the pace of purchases. On the flipside, the NZD may be undermined.
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
Jun
-16
De
c-1
6
Jun
-17
De
c-1
7
Jun
-18
De
c-1
8
Jun
-19
De
c-1
9
US Excess Liquidity vs DXY
US Excess Liquidity (LHS) DXY Curncy
yoy% 3m lead
Reverse scale
14 Source: Bloomberg, OCBC, respective central banks
US Elections: Political risks ahead for the USD
• The probability of a second Trump presidency has faded significantly over the past weeks. From a simplistic angle, a
Biden presidency with a Democrat-dominated Senate could be structurally USD-negative. However, it is still
early days, and the policy platforms are still largely unknown. Structural scenario analyses may not be useful for now.
• With Trump and the Republicans struggling, the usual practice of China-bashing in the run-up of the elections may
resurface. The Democrats are not immune to stroking Sino-US tensions as well, especially in the campaigning
phase. Overall, an uptick in tensions may be USD-positive in the near term.
15 Source: RealClearPolitics
EUR: Looking positive for now
• Various signals for the EUR have been positive in the near term. Within Europe, stronger than expected economic
prints, and progress on the virus recovery fund provide optimism for the EUR. The relative balance sheet expansion at
the ECB is also slower than the Fed thus far.
• However, we need to be more cautious in extending this optimism in the structural horizon. Globally, the virus
situation and pace of economic recovery will be the main drivers for FX, and we do not rule out a return of USD-
strength if we see a deterioration on this front. Fundamentally, we are also skeptical that Europe prints can sustainably
outperform expectations as we move further away from the virus hit. Moreover, it seems likely that the ECB’s balance
sheet expansion will accelerate relative to Fed in 2H 2020, as the ECB starts to utilize its increased purchase limits
and the Fed shifts away from the crisis-fighting mode. Finally, it may also be premature to extend the logic behind the
virus recovery fund into a full-fledged fiscal union within the Eurozone.
-80
-60
-40
-20
0
20
40
60
80
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
Jun
-10
De
c-10
Jun
-11
De
c-11
Jun
-12
De
c-12
Jun
-13
De
c-13
Jun
-14
De
c-14
Jun
-15
De
c-15
Jun
-16
De
c-16
Jun
-17
De
c-17
Jun
-18
De
c-18
Jun
-19
De
c-19
Jun
-20
EUR-USD Fed-ECB B/S growth differential (RHS)
yoy%, 3m lagyoy%
-100
-80
-60
-40
-20
0
20
40
60
80
100
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
Jan-2
1
6m%
EUR-USD 3M Rel MSI (6M Lead)
16 Source: Bloomberg, OCBC
1.06
1.08
1.10
1.12
1.14
1.16
1.18
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
EUR-USD
Actual Fitted
JPY: Constrained by divergent drivers
• The JPY’s haven status has been mostly overshadowed by the USD this year. In periods of risk-on, the weak
USD constrains the upside we typically expect from the USD-JPY. The flipside is also true during risk-off. This leaves
the USD-JPY within a tight range, and JPY-crosses broadly higher. With the market still driven by COVID-19 and the
subsequent recovery, this dynamic is unlikely to shift in the near term.
• Further out, relative economic cues are divergent, suggesting a diffused impact on the structural directionality of the
USD-JPY. On the rate differential front, nominal UST and JGB yields may be expected to stay depressed on central
bank intervention. However, with inflation easing faster in the US than in Japan, the real yield differential
should open up in favour of the USD. Expect this to provide some background support for the USD-JPY structurally.
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0
6m%
USD-JPY Rel US-JP Man PMIs (RHS)
%yoy,6m lead
0.990
0.992
0.994
0.996
0.998
1.000
1.002
1.004
1.006
1.008
1.010
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Jul-2
0% yoy
USD-JPY Rel Leading indicator (RHS)
6m lead
100
102
104
106
108
110
112
114
116
118
120
0.5
1.0
1.5
2.0
2.5
3.0
Jan-1
7
Apr-
17
Jul-17
Oct-17
Jan-1
8
Apr-
18
Jul-18
Oct-18
Jan-1
9
Apr-
19
Jul-19
Oct-19
Jan-2
0
Apr-
20
10y US-JP rate differentials vs. USD-JPY
US-JP 10y rate differentials USDJPY Curncy
17 Source: Bloomberg, OCBC, OECD
AUD: Near term positive; China wildcard
• The AUD has ridden (and is still riding) on a risk-on wave to outperform within the G-10 space. In the near
term, expect the AUD to follow the lead of US equities, which has been remarkably resilient. The main risk for the AUD
is for this sanguine risk environment to be shaken out, and the most visible threat to that is the second wave of virus
cases in the US, and the potential roll-back of the economic re-opening. Domestically, key parts of the economy (eg.
labour market) has held up better than other G-10 economies. This has allowed the RBA to institute a relatively smaller
support programme (see p. 14), and to pull it back sooner. These are all positives for the AUD.
• Aside for the growth concerns, the wildcard for the AUD is its relations with China. If tensions between the
countries do not boil over, the AUD should benefit from the Chinese recovery story. However, sporadic episodes have
already raised tensions, and has affected specific industries and exports to China. Seen in the context of an expected
rise in Sino-US tensions, such tense relationship with China may keep a lid of the AUD on a structural horizon.
18
-50.0
-30.0
-10.0
10.0
30.0
50.0
70.0
90.0
-35.0
-25.0
-15.0
-5.0
5.0
15.0
25.0
35.0
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
% yoy, 6m lead
AUD TWI RBA commod price index (RHS)
% yoy
5
10
15
20
25
30
35
-30
-20
-10
0
10
20
30
40
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
yoy% 5m lead
yoy%
AUD TWI China M2 growth
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
60-day Correlation with S&P 500
AUD Curncy NZD Curncy GBP Curncy
Source: Bloomberg, OCBC, RBA
Investment community moving against the USD
• The investment community has been consistently moving against the USD since mid-2019. In particular, the net
implied USD positioning for the non-commercial accounts have flipped into a short USD bias. The implied long USD
positioning for leveraged accounts has also been pared to near-neutral levels. The longer-term asset managers have
extended their net implied USD positions to historical high levels.
• Nevertheless, the previously tight correlation between implied positioning of the non-commercial and
leveraged accounts, and the broad USD started to break down around that time. Keep a close watch for a
potential re-establishment of the correlation.
75
80
85
90
95
100
105-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Jul-18
Jan-1
9
Jul-19
Jan-2
0
USD mn
Asset Manager Positioning
Net USD positioning (USD terms)
Net USD Positioning excl JPY (USD terms)
DXY Index (RHS)
Long Dollar Bias
Short Dollar Bias
75
80
85
90
95
100
105-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Jul-18
Jan-1
9
Jul-19
Jan-2
0
USD mn
Leveraged Positioning
Net USD positioning (USD terms)Net USD Positioning excl JPY (USD terms)DXY Index
Long Dollar Bias
Short Dollar Bias75
80
85
90
95
100
105-50,000
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Jul-18
Jan-1
9
Jul-19
Jan-2
0USD mn
Non-commercial positioning
Net USD positioning (USD terms)Net USD Positioning excl JPY (USD terms)DXY Index
Short Dollar Bias
Long Dollar Bias
19 Source: Bloomberg, CFTC, OCBC
Asian 10y: Nominal yields softer, but watch real yields
• Nominal yields see downside pressure, with the front end anchored by rate- and RRR-cutting central banks, and the
back end by healthy foreigner interest and flush liquidity. Overall, we continue to favour high-yielders like the
IndoGBs in the near term. However, the declines have been outweighed by the capitulation in the inflation front (see p.
8). This translates to a materially higher back-end real rates for the Asian economies. This negates the easing
bias of the central banks.
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%SK
2.60
2.90
3.20
3.50
3.80
4.10
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%MY
6.00
6.50
7.00
7.50
8.00
8.50
9.00
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%ID
5.60
6.10
6.60
7.10
7.60
8.10
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%IN
0.60
1.10
1.60
2.10
2.60
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%SG
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
% CN
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
% TW
0.60
1.10
1.60
2.10
2.60
3.10
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
%TH
20 Source: Bloomberg, CEIC, OCBC
NEERs: Resilient amid COVID-19 threat
• Apart from the INR and MYR, most Asian NEERs has been relatively resilient during this COVID-19 episode. Initial dips
at the start of the crisis have largely recovered to levels that are firmer than pre-COVID. As with the higher real back-
end yields, this produces a tightening effect on the Asian economies.
1000
1050
1100
1150
1200
1250
130071.00
73.00
75.00
77.00
79.00
81.00
83.00
85.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
South Korea
KRW NEER 5y Average USD-KRW (RHS)
Index: Jan 94 = 100 29.00
29.50
30.00
30.50
31.00
31.50
32.00
32.50
33.00
33.50
34.0079.00
81.00
83.00
85.00
87.00
89.00
91.00
93.00
95.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Taiwan
TWD NEER 5y Average USD-TWD (RHS)
Index: Jan 94 = 100
9000
10000
11000
12000
13000
14000
15000
16000
1700014.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Indonesia
IDR NEER 5y Average USD-IDR (RHS)
Index: Jan 94 = 100
28.00
29.00
30.00
31.00
32.00
33.00
34.00
35.00
36.00
37.0078.00
80.00
82.00
84.00
86.00
88.00
90.00
92.00
94.00
96.00
98.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Thailand
THB NEER 5y Average USD-THB (RHS)
Index: Jan 94 = 100
53.00
56.00
59.00
62.00
65.00
68.00
71.00
74.00
77.00
80.0043.00
45.00
47.00
49.00
51.00
53.00
55.00
57.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
India
INR NEER 5y Average USD-INR (RHS)
Index: Jan 94 = 100 2.80
3.00
3.20
3.40
3.60
3.80
4.00
4.20
4.40
4.6070.00
75.00
80.00
85.00
90.00
95.00
100.00
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
Jan-2
0
Malaysia
MYR NEER 5y Average USD-MYR (RHS)
Index:: Jan 94 = 100
0
10
20
30
40
50
60
70
80
90
100
80828486889092949698
100102104106108110112114116118
De
c-16
Ma
r-17
Jun
-17
Sep
-17
De
c-17
Ma
r-18
Jun
-18
Sep
-18
De
c-18
Ma
r-19
Jun
-19
Sep
-19
De
c-19
Ma
r-20
Jun
-20
Asian NEERs
THB PHP IDR MYR SGD
TWD KRW CNY INR
Index:30 Dec 2016 = 100 2019 2020
-4.03
-2.88 -2.66 -2.52 -2.43
-1.13
0.66
2.61 2.79
-5.00
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
INR IDR MYR THB KRW SGD CNY TWD PHP
Year-to-date Asian NEER performance
06/07/2020
%
21 Source: Bloomberg, CEIC, OCBC
Asia FX: The lead from China is diffused
• China is first-in-first-out for the COVID-19 episode, and its handling of a subsequent wave in Beijing has been effective.
The macro recovery continues apace, but the trajectory remains more of gradual slope than a steep rebound. Thus, it
provides some background positivity for the rest of Asia.
• However, its impact is probably just limited to that. The CFETS RMB Index remains broadly aligned with the DXY Index,
and the USD-CNH and USD-CNY pairs remain locked within range. A more significant tilt in the Sino-US tensions (see
p. 15) would probably be required for the RMB to break through the ranges. Overall, we do not see the RMB taking
up a leading role within USD-Asia for now, and may continue to underperform its Asian peers.
22 Source: Bloomberg, OCBC
90
91
92
93
94
95
96
97
98
99
100
101
102
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
Jul-
20
31/12/2014=100
CFETS RMB Index
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Ap
r-2
0
%
3M Volatility (Realized)
CFETS RMB Index USD-CNY Mid-point
Asia FX: Resilient for now, but questionable structurally
• The persistent risk-on dynamic globally should continue carrying the Asian currencies early in the 2H 2020. However,
the glass-half-full environment may be less sustainable in Asia than in Europe and US. The macro performance
in Asia has already started weaken relative to Europe and US (see p. 6). Moreover, the real rates and currency
environments may be a drag on the Asian economies (see p. 20 – 21). Thus, the chance that Asian currencies may
start to slip as we head deeper in the 2H 2020 is material, especially if the macro recovery stalls.
• The structural outlook for Asian currencies may depend on the export sector, which may not have bottomed yet (see p.
8). From a fundamental perspective, we see limited arguments for the export sector to boom into 2H 2020. However,
the rapid bounce higher in the Philadelphia Semiconductor Index perhaps suggest that the global tech sector is
healthier than the general economy and that may be a catalyst for a swifter-than-expected export recovery in Asia.
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
6m%
ACI 3M Rel MSI (6M Lead)
Stronger USD
Weaker USD
-30
-20
-10
0
10
20
30
40
50
60
70
-1.5
-1.0
-0.5
0.0
0.5
1.0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Ja
n-1
4
Ja
n-1
5
Ja
n-1
6
Ja
n-1
7
Ja
n-1
8
Ja
n-1
9
Ja
n-2
0
% yoy; 3mma; lead 3
Z-score3mma
Asia (ex-CN, JP) Exports Philly Semiconductor Index
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
% yoyinversed
Export Z-score3mma
Asia (ex-CN, JP) Exports ACI (RHS)
Weaker USD
Stronger USD
23 Source: Bloomberg, CEIC, OCBC
Cautiously bullish on North Asia; Mixed bag in South Asia
• The USD-KRW should remain most reactive to global risk dynamics,
and the persistent risk-on bias (see p. 9) should keep the pair implicitly
heavy. The TWD, on the other hand, sees growing background support
from portfolio inflows (see p. 25 – 26) and a tech sector that is perhaps
healthier than the general economy (see p. 23). However, the RMB may
still be a laggard on potential Sino-US tensions.
• In the South, we see a mixed bag with the different pairs moving
on their own idiosyncratic drivers. The THB should continue to
outperform in this space, with gold still looking northbound. The BOT
threatens intervention, but their impact should be limited (if history is
any guide). Meanwhile, the USD-IDR may have room to retrace higher
after its aggressive decline, especially as the recent “burden-sharing”
agreement between BI and the government may result in higher-order
(rating downgrades, loss of investor confidence etc) issues in the
structural horizon. On the other hand, the USD-MYR may see some
implicit upward pressure, especially if the political situation does not
settle down.
24 Source: Bloomberg, CEIC, OCBC
106
108
110
112
114
116
118
120
122
124
Jun-1
5
Oct-
15
Fe
b-1
6
Jun-1
6
Oct-
16
Fe
b-1
7
Jun-1
7
Oct-
17
Fe
b-1
8
Jun-1
8
Oct-
18
Fe
b-1
9
Jun-1
9
Oct-
19
Fe
b-2
0
Jun-2
0
Asian Currency Index (ACI) implied valuation
Actual Predicted
WeakerAsian FX
StrongerAsian FX
Asian FX Short-term Heat Map
USD JPY CNH SGD MYR KRW TWD THB PHP INR IDR
USD 2 1 9 9 1 1 9 1 1 2
JPY 2 2 1 1 1 2 1 1 1 2
CNH 1 2 1 1 1 2 9 9 1 2
SGD 9 1 1 2 1 1 1 1 1 2
MYR 9 1 1 2 1 1 1 1 1 2
KRW 1 1 1 1 1 1 1 1 9 2
TWD 1 2 2 1 1 1 9 9 1 2
THB 9 1 9 1 1 1 9 9 1 2
PHP 1 1 9 1 1 1 9 9 1 2
INR 1 1 1 1 1 9 1 1 1 2
IDR 2 2 2 2 2 2 2 2 2 2
1045
1095
1145
1195
1245
1295
1345-9000
-7000
-5000
-3000
-1000
1000
3000
5000
7000
9000
11000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
South Korea
NFB: Bond & Eq 20D RS USD-KRW
Loose monetary conditions in DM flowing into Asia
29.0
29.5
30.0
30.5
31.0
31.5
-16000
-11000
-6000
-1000
4000
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Taiwan
NFB: 20d RS USD-TWD
62.00
64.00
66.00
68.00
70.00
72.00
74.00
76.00
78.00-20000
-15000
-10000
-5000
0
5000
10000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
India
NFB: Bond & Eq RS 20D USD-INR
13000
13500
14000
14500
15000
15500
16000
16500
17000-25000
-20000
-15000
-10000
-5000
0
5000
10000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Indonesia
Bond & Equity: 20D RS USD-IDR
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5-3000
-2000
-1000
0
1000
2000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Thailand
Net bond & equity WTD RS20 USD-THB
3.85
3.95
4.05
4.15
4.25
4.35
4.45-1800
-1500
-1200
-900
-600
-300
0
300
600
900
Jan-
18
Ap
r-18
Jul-1
8
Oct
-18
Jan-
19
Ap
r-19
Jul-1
9
Oct
-19
Jan-
20
Ap
r-20
Jul-2
0
Malaysia
Equity 20D RS USD-MYR
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
De
c-16
Feb
-17
Ap
r-1
7
Jun
-17
Au
g-1
7
Oct
-17
De
c-17
Feb
-18
Ap
r-1
8
Jun
-18
Au
g-1
8
Oct
-18
De
c-18
Feb
-19
Ap
r-1
9
Jun
-19
Au
g-1
9
Oct
-19
De
c-19
Feb
-20
Ap
r-2
0
Jun
-20
Total Portfolio Flows (20D RS) ACI (RHS)
z-score4wk MA
1m%
Stronger Asia FX
Weaker Asia FX
-40000
-35000
-30000
-25000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
De
c-16
Ma
r-17
Jun
-17
Sep
-17
De
c-17
Ma
r-18
Jun
-18
Sep
-18
De
c-18
Ma
r-19
Jun
-19
Sep
-19
De
c-19
Ma
r-20
Jun
-20
Asian aggregate portfolio flows (20D Rollsum)
Equity Bond
• With the return of market optimism, foreign investors are increasingly looking to rotate back into Asia. Equities have seen
a good run higher, the next lap may be seen on the bond front on the back of the search-for-yield dynamic However, we
get the sense that this return of fund flows is already priced into the FX space.
25 Source: Bloomberg, CEIC, OCBC
Malaysia the laggard on the portfolio flows front
• With the exception of Malaysia, most Asian economies have seen a recovery (or at least consolidation) in terms of their
portfolio flow environment from the trough seen earlier in the year. Although this provides support for the Asian
currencies for now, the year-to-date flows situation still looks dire in most economies, except South Korea and Indonesia.
-10,000.00
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Korea - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-30,000.00
-25,000.00
-20,000.00
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Taiwan - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-30,000.00
-20,000.00
-10,000.00
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
India - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-25,000.00
-20,000.00
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
cIndonesia - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-15,000.00
-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Thailand - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
-6,000.00
-4,000.00
-2,000.00
0.00
2,000.00
4,000.00
6,000.00
8,000.00
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oct
No
v
De
c
Malaysia - Yearly cumulative flows
2013 2014 2015 2016
2017 2018 2019 2020
26 Source: Bloomberg, CEIC, OCBC
SGD NEER: Steady as she goes
• Since the April MPS, the SGD NEER has remained in a narrow range on either side of the parity level. We think this
stability reflects the MAS’s view (which has been reinforced a few times) that the current monetary policy is appropriate.
Going forward, we expect 2020 growth to enter at -6.0% to -5.0% yoy, within the weak end of the official forecast of -
7.0%. Thus, any further shift in monetary policy from here will have a high hurdle.
• We do not rule out a slight drift lower in the SGD NEER, especially if global growth stalls. However, the SGD NEER
should remain anchored around the parity level, perhaps limited to -0.50% below parity. This leaves USD-SGD
directionality largely a function of broad USD prospects at this stage.
-0.4000
-0.3000
-0.2000
-0.1000
0.0000
0.1000
0.2000
0.3000
Contribution of SGD NEER component currencies (from 30 Mar - 6 Jul)
INR
AUD
IDR
KRW
GBP
CNY
THB
TWD
JPY
MYR
EUR
USD
SGD strengthens agst currency x
SGD weakens agst currency x
116
117
118
119
120
121
122
123
124
125
126
127
128
129
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
Jul-1
9
Oct-
19
Jan-2
0
Apr-
20
Jul-2
0
Oct-
20
2.0%pa+/-2.0% band
flatten slope
neutral slope
1.0%pa+/-2.0% band
flatten slope
0.5%pa+/-2.0%
band
0.0%pa+/-2.0% band
0.5%pa+/-2.0%
band
steepen slope
1.0%pa+/-2.0% band
steepen slope
0.5%pa+/-2.0%
band
flatten slope
neutral slope, re-centre lower
0.0%pa+/-2.0%
band
27 Source: Bloomberg, OCBC
FX Forecasts (correct as of 1 Jul)
28
Spot Jul-20 Sep-20 Dec-20 Mar-21 Jun-21
USD-JPY 107.68 107.28 108.24 108.39 107.17 105.96
EUR-USD 1.1231 1.1307 1.1338 1.1176 1.1308 1.1441
GBP-USD 1.2384 1.2231 1.2137 1.2216 1.2462 1.2708
AUD-USD 0.6906 0.6951 0.6979 0.6743 0.6915 0.7086
NZD-USD 0.6456 0.6495 0.6526 0.6283 0.6415 0.6547
USD-CAD 1.3568 1.3514 1.3477 1.3777 1.3569 1.3362
USD-CHF 0.9472 0.9438 0.9423 0.9529 0.9436 0.9344
USD-SGD 1.3935 1.3894 1.3794 1.4021 1.3901 1.3781
USD-CNY 7.0682 7.0497 7.0991 7.1130 7.0331 6.9532
USD-THB 30.95 30.75 30.55 30.95 30.58 30.21
USD-IDR 14290 14,488 14,467 14,467 14,198 13928
USD-MYR 4.2838 4.2977 4.3064 4.3121 4.2579 4.2037
USD-KRW 1203.35 1197.93 1186.47 1214.81 1195.59 1176.37
USD-TWD 29.491 29.427 29.284 29.637 29.377 29.117
USD-HKD 7.7506 7.7500 7.7520 7.7800 7.7700 7.7600
USD-PHP 49.83 49.60 49.47 50.05 49.60 49.16
USD-INR 75.58 75.10 76.00 76.18 75.14 74.10
EUR-JPY 120.93 121.30 122.72 121.13 121.20 121.23
EUR-GBP 0.9069 0.9245 0.9342 0.9149 0.9074 0.9003
EUR-CHF 1.0638 1.0672 1.0684 1.0649 1.0671 1.0690
EUR-SGD 1.5651 1.5711 1.5640 1.5670 1.5720 1.5766
GBP-SGD 1.7257 1.6994 1.6743 1.7128 1.7323 1.7513
AUD-SGD 0.9624 0.9657 0.9627 0.9455 0.9612 0.9765
NZD-SGD 0.8996 0.9024 0.9002 0.8810 0.8917 0.9022
CHF-SGD 1.4713 1.4721 1.4639 1.4715 1.4731 1.4748
JPY-SGD 1.2942 1.2952 1.2744 1.2937 1.2971 1.3005
SGD-MYR 3.0740 3.0931 3.1218 3.0754 3.0630 3.0505
SGD-CNY 5.0724 5.0737 5.1464 5.0730 5.0595 5.0457
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Co.Reg.no.:193200032W
Treasury Research & Strategy
Macro Research Selena Ling
Head of Research & Strategy
Tommy Xie Dongming
Head of Greater China Research
Wellian Wiranto
Malaysia & Indonesia
Terence Wu
FX Strategist
Howie Lee
Thailand, Korea & Commodities
Carie Li
Hong Kong & Macau
Dick Yu
Hong Kong & Macau
Credit Research
Andrew Wong
Credit Research Analyst
Ezien Hoo
Credit Research Analyst
Wong Hong Wei
Credit Research Analyst
Seow Zhi Qi
Credit Research Analyst
29
