CNY (6.745) ▲

▪ CNY depreciated for the fifth straight month against the USD in July as China’s 2Q22 GDP turned out to be weaker-thanexpected (actual: 0.4% YoY; consensus: 1.0%). Additionally, the yuan was also weighed by China’s economic uncertainty due to renewed local COVID-19 lockdowns and property market crisis.

▪ The yuan is expected to trade range-bound between 6.70 – 6.75 with an upside bias against the greenback as the USD index may continue to hover below the 106.0 mark due to US slowing economic growth. However, the upside may be limited as China continues to stick to its dynamic zero-COVID policy.

JPY (133.270) ▲

▪ After spending most of July pressured against the USD, the JPY soared towards the end of the month, ending a long-period of sustained weakness. The yen bounced following market concerns of a US recession, leading to lower US Treasury (UST) yields and narrowing yield differentials against Japanese Government Bonds. This comes despite mixed Japanese economic data and weaker market sentiment following the assassination of former Prime Minister Shinzo Abe.

▪ JPY may sustain this renewed strength in August, especially following the recent US GDP report that indicated the it had entered a technical recession and may slow the pace of the Fed’s policy tightening. Nonetheless, this upside bias will likely be capped by the Bank of Japan’s dovish stance, with the Fed still expected to raise rates going forward.

MYR (4.451) ▲

▪ MYR fell to its weakest level in 67 months against a strengthening USD due to the Fed’s back-to-back 75 basis points (bps) rate hikes amid a hotter-than-expected June US CPI reading. On top of that, the ringgit was also dragged by China’s economic uncertainty.

▪ The local note may continue to be under pressure as investors are seen to continue to seek shelter in havens (i.e. USD) due to growing recessionary fears. However, due to USD’s overvaluation, the ringgit is expected to trade with an upside bias in August, especially if there is any hint that the Fed might start to slow down its aggressive pace of tightening.

IDR (14,834) ▲

▪ IDR ended the month of July with a slight appreciation against the USD as the economic slowdown in the US, as reflected by its poor 2Q22 GDP growth reading, may trigger the Fed to slow down its rate hikes. The rupiah's performance was also supported by a robust trade surplus and foreign capital inflows. Nevertheless, dovish Bank Indonesia (BI) partially capped the upside bias as the central bank remained status quo on policy rate.

▪ The rupiah may continue to find its support from relatively higher commodity prices and robust external demand. In addition, BI may eventually shift to a more hawkish tone as the domestic outlook improves and inflationary pressure build-up.

THB (36.323) ▲

▪ THB continued its downtrend against the USD in July, deteriorating to its weakest level in seven years, as the US Fed raised rates by another 75 bps whilst the Bank of Thailand (BoT) kept the policy rate at a record low of 0.50%.

▪ THB may appreciate in August as the BoT will likely commence its rate hike cycle amid rising inflationary pressures and improving economic outlook, with the consumer confidence index for June improving to 41.6 (May: 40.2) and exports growth beating expectations (11.9% YoY; May: 10.5%). However, growing global recession fears may partially limit the upside bias.

Source: Kenanga Research - 1 Aug 2022