Asia Daily Update

** China: We see downside bias in USD-CNH
** PBoC starts offshore bond sales in London
** China starts cross-border yuan payment system
** Thailand: September’s consumer confidence falls to 16-month low

North Asia

PBoC set USD-CNY fixing rate at 6.3493 this morning, compared with 6.3505 yesterday. In the meantime, USD-CNH lowered to 6.34 overnight driven by dollar weakness. China’s central bank set the fixing rate between CNY and CNH for the second consecutive day, reflecting the intention to narrow CNY-CNH spread. However, it is still quite difficult without free cross-border flows. In the day ahead, we still see downside bias in USD-CNH as all emerging market currencies remain strong on recent rally in oil prices. The role of PBoC is very interesting: as the central bank still dominates the onshore market, the onshore market volatility is quite limited. Thus, in order to narrow the gap against onshore market, China’s central bank needs to intervene into the more volatile CNH market, which is normally against the market trend.

The PBOC will sell as much as CNY5bn of 1-year bonds in London in less than a month, marking its first such offering outside the country. ICBC and HSBC are arranging the sale. The central bank said last month that the issuance would take place “in the near future,” after bilateral discussions between U.K. and Chinese officials.

The People’s Bank of China yesterday initiated the first phase of the China International Payment System, which provides clearing and settlement services, it said in a statement on its website. Some 19 lenders in China are directly participating. The payment system operates from 9 a.m. to 8 p.m. in Beijing. The real-time yuan settlement platform in Hong Kong, runs from 8:30 a.m. to 5 a.m. the next day. This is a system similar to the SWIFT, and is seen as another step towards RMB internationalisation.

South Asia

THAILAND: September’s consumer confidence index released yesterday fell for the ninth straight month to 72.1 from 72.3 in August. This marks a 16-month low despite the announcement of a USD4bn stimulus package early last month. There are a few factors that dampened sentiment, including concerns over the broader economic slowdown, persistently low agricultural product prices and the weak THB. With demand remaining weak on both the domestic and external front, we see downside risk to Bank of Thailand (BoT)’s growth forecast of 2.7% for this year.