Weekly Asia FX – Sentiment for Chinese yuan improves

by: Roy Teo

Most Asian currencies closed lower last week due to weaker than expected economic data releases. The Indian rupee slumped by 2% after the central bank lowered its growth projections for 2013-14 from 5.7% to 5.5%. The currency was also weighed down by market concerns that the central bank’s focus to ensure macroeconomic stability from external shocks and addressing inflation risks might be at the expense of stimulating growth. Profit taking in the South Korean won set in after weaker than expected data releases and caution from government officials that export conditions to China will be challenging. On the other hand, sentiment in the Chinese yuan (CNY) improved after the government stated that a stable macroeconomic policy will be maintained to ensure steady growth in the second half of this year. A stronger than expected manufacturing and services PMI also supported the CNY. Looking ahead, we remain comfortable with the CNY as our top Asian FX pick.