Asia Daily Update

North Asia:
** China: USD-CNY lower on weaker USD and much lower PBOC mid-point fix
** Korea: BoK met to discuss Fed’s changes; closely watching market volatility

CHINA: There’s not much on the data front for China. The next key release is next Tuesday’s HSBC manufacturing PMI for March with consensus currently at 50.3 vs 50.7 previously. PBOC set the mid-point for USD-CNY even lower this morning, down nearly 0.2% to 6.14600 vs 6.15560 yesterday. USD-CNY gapped down at the open yesterday and closed 0.3% lower at 6.2294. Not surprisingly, USD-CNY gapped down at the open again this morning by 0.3% to 6.2125 due to the lower fix and the weaker USD. As with the rest of USD-Asia, the risks are to the downside and we could see even further liquidations of USD longs. The 6.1800-6.2000 area could act as the next key support area.

KOREA: BoK said it held a meeting this morning to discuss the impact of the FOMC meeting overnight. BoK said it will closely monitor a possible increase in volatility in the FX and financial markets and will take measures if needed. USD-KRW gapped down 1.4% at the open this morning to 1,113 from the close of around 1,130 yesterday. Given the sluggish growth outlook however, we could see BoK favour a supportive tone for USD-KRW near term.

South/Southeast Asia:
** India: Governor Rajan notes India is better positioned to handle Fed normalization
** Singapore: USD-SGD lower but SGD NEER holds steady around -1.7% vs mid-point

INDIA: RBI Governor Rajan said yesterday that India is much better prepared now than before in case of changes in Fed policy. He quoted a better fiscal position, current account deficit situation aided by the drop in oil prices, and FX reserves are at much healthier levels. FX reserves are around USD312bn at end-February 2015 vs the low just under USD250bn in September 2013. The sharp drop in oil prices has also contributed to lower inflation which provides RBI the leeway to lower rates further. Apart from the policy repo rate which is currently at 7.50%, the cash reserve ratio (CRR) could also be lowered from the 4% level currently to further ease the liquidity situation. For USD-INR, it held within the 62.60-62.80 range yesterday and closed unchanged around 62.69. The risks are to the downside at the open this morning following the softer USD overnight. The immediate support is seen around the 62.00-62.20 area.

SINGAPORE: The latest MAS Survey of Professional Forecasters saw a downgrade in this year’s growth to 2.8% vs 3.1% in the December survey. Headline inflation was also lowered to just 0.1% vs 1.1% previously with core inflation (excluding housing and private transportation) at 1.0% vs 1.9% previously. MAS is projecting core CPI at 0.5-1.5% this year. Overall, the downgrades were not surprisingly, particularly on inflation given the sharp drop in oil prices and probably more importantly, falling rental prices on the soft property outlook.

- USD-SGD fell sharply in line with the rest of USD-Asia overnight, it closed 120 pips lower at 1.3770. For the SGD NEER, we estimate it is relatively stable at -1.7% vs the mid-point despite the drop in USD-SGD. The +/-2% band around the mid-point has shifted lower to 1.3280-1.3820, ceteris paribus.