CNY (6.370) ▲

▪ CNY rallied to its strongest in over three years, buoyed by favourable trade data and amid a softer dollar, due to a lower-than-expected rise in the US non-farm payrolls.

▪ CNY may sustain an uptrend this month, as the Fed retains a dovish policy rhetoric and views the rise in inflation as transitory. Further recovery in China’s economic indicators would also lift the CNY higher.

JPY (109.680) ▼

▪ JPY depreciated in May despite a generally weak USD. This is predominantly due to Japan’s declining economic outlook, as it registered a worse-than-expected 1Q21 GDP growth rate of -5.1% YoY (4Q20: 11.6%). Furthermore, Japan recently extended its COVID-19 state of emergency for the third time, which is now running until 20 June.

▪ JPY may continue to weaken this month, as the extended state of emergency will likely exacerbate declining private consumption, which would weigh on Japan’s recovery outlook.

MYR (4.125) ▲

▪ MYR erased some of its April’s gains, mainly due to the worsening local COVID-19 situation. Despite a stronger than-expected domestic economic data, higher Brent crude oil price and weakening USD index, the local note faced strong selling pressure due to the implementation of the Movement Control Order (MCO) 3.0 and the announcement of the Full MCO (FMCO).

▪ Despite the expectation of a continued rise in local COVID-19 cases and the implementation of the FMCO, MYR is poised to end the month higher against the USD at around 4.12, driven by the prospect of a faster vaccine roll-out, stable crude oil market and a weaker greenback. However, an earlier-than-expected tapering during the Fed's June 16 meeting could change the weak USD narrative and put pressure on the local note.

IDR (14,280) ▲

▪ IDR strengthened in May as domestic economic data hinted at a mild recovery and as foreign investors returned to its high-yielding bond market. This was further bolstered by Bank Indonesia’s (BI) decision to hold rates steady for the third straight month.

▪ IDR may further appreciate in June if the US Fed continue to reiterate its dovish stance. Nonetheless, the upside bias will be limited, given the fears of potential COVID-19 resurgence amid new variants.

THB (31.217) ▲

▪ THB weakened as sentiment was battered by the third wave of COVID-19 infections and a slash in 2021 official growth forecast (1.5% - 2.5%; previous: 2.5% - 3.5%). It was also weighed by a spike in US inflation.

▪ THB may trade slightly higher in June on an expected pickup in vaccination drive as registrations have been opened to more residents. It may further gain on additional fiscal injection following the approval of USD16b borrowing bill and reiteration of the Fed’s dovish stance

Source: Kenanga Research - 1 Jun 2021