CNY (6.445) ▼

▪ CNY closed September almost unchanged against the USD, having traded most of the month in a tight range. This comes amid signs of a slowdown in China’s economy, concerns over Evergrande’s debt crisis, and a stronger dollar post-FOMC meeting.

▪ CNY to depreciate slightly against the USD in October, as China’s recovery may continue to waver. Recent energy shortages and factory closures are expected to weigh on China’s industrial output.

JPY (112.040) ▲

▪ JPY depreciated considerably against the USD in September, reaching its weakest level since February 2020. The yen was pressured by a strengthening dollar on the back of soaring US Treasury (UST) yields after the latest FOMC meeting. Furthermore, much of Japan remained under a COVID-19 state of emergency in September, weighing on its recovery outlook.

▪ JPY may strengthen slightly in October as Japan lifts its nationwide state of emergency, amid falling COVID-19 cases, and as Fumio Kishida looks set to become the new Prime Minister. However, this upside will likely be capped by potentially higher UST yields.

MYR (4.186) ▲

▪ Despite a 6.2% MoM rise in average Brent crude oil price in September, the tabling of the long-awaited 12th

Malaysia plan and improving domestic COVID-19 situation, MYR weakened against a strengthening greenback due to a rapid rise in both USD index (DXY) and 10-year UST yield amid Fed's hawkish shift.

▪ Even though the DXY is expected to remain elevated due to the global risk-off mode on the back of the rising inflation outlook, Fed's hawkish tone and US fiscal uncertainty, the local note may gather some strength and appreciate slightly against the USD amid positive sentiment surrounding the reopening of the economy.

IDR (14,313) ▲

▪ IDR depreciated slightly against the USD in September as UST yields surged. In addition, rising concern over weaker China growth outlook amid power supply crunch and Evergrande crisis weighed on the rupiah. Nonetheless, the downside bias was capped due to surging exports while Bank Indonesia signalled signs of economic recovery in its last MPC meeting.

▪ IDR is expected to strengthen in October as the domestic COVID-19 situation improves and the economy gradually reopens. However, concern over China growth recovery and the US Fed tapering plan may limit the upside.

THB (33.897) ▼

▪ THB weakened against the USD in September, and it is Asia's worst-performing currency. The weak performance was mainly associated with electricity shortages in China and surging UST yields. In addition, Thailand's Finance Minister said the monetary policy must be accommodative in line with the fiscal policy as the economy is still struggling from the prolonged pandemic.

▪ The short-term outlook remains weak for THB and is expected to depreciate further in October due to the uncertainties of the COVID-19 pandemic and the US Fed tapering plan.

Source: Kenanga Research - 1 Oct 2021