CNY (6.895) ▲

▪ CNY weakened for the sixth consecutive month against the USD, trading closer to the 7.00 psychological threshold, mainly due to the People's Bank of China (PBOC) surprise rate cuts, domestic economic slowdown, and the Fed's Powell's hawkish speech at the Jackson Hole symposium.

▪ The yuan may struggle for direction as investors may continue to buy safe-haven assets ahead of the September FOMC meeting. On top of that, China's zero-COVID-19 policy stance and CN-US negative government bond yield differentials may continue to increase China capital outflows, further pressuring the yuan. However, the PBOC may intervene to limit the yuan’s losses by setting a stronger currency fixing.

JPY (138.730) ▼

▪ JPY depreciated against the USD in August, ending a period of rare yen strength from July. The JPY was pressured by broadbased USD strength, bolstered by hawkish Fed comments at Jackson Hole. In contrast, the Bank of Japan’s (BoJ) Governor Kuroda reiterated the central bank’s commitment to an ultraloose monetary policy stance until wages and prices rose in a stable and sustainable manner.

▪ JPY may continue to weaken in September, amid the Fed’s renewed hawkishness and the BoJ preserving its status quo. The depreciation could also worsen if the Fed embarks on another massive 75 bps rate hike at its upcoming FOMC meeting.

MYR (4.476) ▲

▪ MYR extended its losses against the USD due to rising demand for safe-haven assets amid general pessimism about the global economy, Fed's continued hawkishness, Europe's energy crisis, and China's economic slowdown. However, the local note was partially supported by Malaysia’s strong fundamentals.

▪ The ringgit is expected to strengthen against the USD in September due to a potential 25 basis points (bps) overnight policy rate hike by the Bank Negara Malaysia and expectation of a slower US inflation reading. However, the local note may trade under downward pressure if the Fed hikes its key interest rate by another 75 bps.

IDR (14,843) ▲

▪ IDR depreciated slightly against the USD in August largely driven by a hawkish US Fed in its mission to combat inflation. It was also partly driven by rising fears of global recession led by the acceleration in global monetary policy tightening and China's poor economic indicators. Nevertheless, the rupiah was supported by Bank Indonesia’s (BI) surprise rate hikes as the central bank shifted towards controlling inflation.

▪ IDR is expected to be relatively stable in September as it continues to find support from higher commodity prices and robust external demand. Likewise, BI may turn more hawkish and could embark on back-to-back rate hikes in its remaining Board of Governor meetings for this year, boosting the IDR.

THB (36.470) ▼

▪ THB closed the month weaker against the USD, despite a period of strength following the Bank of Thailand’s 25 bps rate hike and optimism about the country’s tourism-led growth. However, the baht ultimately faced pressure from a resurgent dollar amid sustained Fed hawkishness, and from the suspension of the Thai Prime Minister.

▪ THB may continue to weaken slightly in September amid domestic political uncertainty and against a broadly strong USD. However, this weakness could be mitigated by solid economic fundamentals and a sustained recovery in tourist arrivals.

Source: Kenanga Research - 1 Sept 2022