Asia-Pac Currencies Gain As Risk Appetite Returns

With the unsurprising exception of the Philippine peso – Asia’s worst-performing currency of the year – Asia-Pac’s most actively traded currencies made gains against the US dollar on Tuesday.

Although limited, gains were somewhat easy to come by as risk appetite returned after the President of Catalonia, Carles Puigdemont, held off on formally declaring the region’s independence from Spain, and by doing so, stepped back from what had looked like the precipice of a constitutional crisis in Europe’s fourth largest economy.

Although insisting he had a mandate to declare independence, Puigdemont told the Catalonian parliament on Tuesday that any move to do so would be pushed back several weeks in order to allow talks with the Spanish government in Madrid.

Elsewhere, investors continue to doubt the effectiveness of Trump’s proposed tax cuts, as well as their implementation.

“Overall, the research literature appears to suggest that tax cuts can have modestly positive supply-side effects, though some studies find no effect,” said researchers at Goldman Sachs (NYSE:GS) this week.

And Trump’s feud with Senator Bob Corker – an influential Republican leader and Chairman of the Senate Foreign Relations Committee – has done little to suggest tax reform will go smoothly or quickly.

“This is the worst possible time for Trump to make enemies in the Senate,” explains Vox’s Dylan Matthews.

Chinese Yuan

The yuan was one of the best gainers against the dollar on Tuesday as the People’s Bank of China likely moves to support the currency ahead of next week’s 19th National Congress – a major political event at which significant changes will be made to China’s top leadership positions.

The yuan strengthened by 0.8%, pushing USD/CNY down to 6.571.

Japanese Yen

The yen strengthened 0.3% against the dollar, with USD/JPY falling to 112.30, assisted by a rebound in Japanese machinery orders. Data showed that orders grew by 4.4% in the year to August – the highest rate of annualized growth since April.

Yen volatility is expected to pick up in the run-up to the Japanese election on October 22nd.

The gloves came off as campaigning for the election began on Tuesday, with current Prime Minister Shinzo Abe and popular Tokyo governor Yuriko Koike taking digs at each other in front of audiences in Fukushima and Tokyo respectively.

Abe, who leads the Liberal Democratic Party, called the snap election on September 25th after an uptick in approval ratings resulted from his handling of recent North Korean provocation.

Koike, who leads the Party of Hope, is attempting to become Japan’s first female Prime Minister.

Indian Rupee

Like the yen, the rupee strengthened by 0.3% against the dollar and USD/INR continues to consolidate around 65.50 after its recent rise (rupee fall) from 63.75.

Important economic data for India will be released on Thursday in the form of August’s industrial production and manufacturing output, as well as inflation numbers for the month of September. The most important of these numbers, annual inflation, is forecast to pick up to 3.6%, from 3.36% previously.

Australian Dollar

The “Aussie” is struggling to get back above 0.78 against the dollar. A 0.6% rally to 0.7797 on Tuesday and another to 0.7809 on Wednesday morning were both forced back. When last seen, a little before 3am on Wednesday, AUD/USD was back in the low 0.7780s.

The Australian dollar’s 4% decline since a September high of 0.8125 is being assisted by a decline in the price of iron ore – Australia’s largest export – which fell sharply overnight and is now back below $60 per tonne.

For AUD traders, attention now turns to Friday’s Financial Stability Review by the Reserve Bank of Australia, scheduled for 11:30am in Sydney (12:30am GMT).

Philippine Peso

The peso continues to be Asia’s worst performing currency of the year.

Among the thirteen most active Asia-Pac currencies, the peso was the only one to depreciate against the dollar on Tuesday. The peso’s year-to-date loss against the “greenback” now stands at 3.6%, which is especially disappointing given that the US Dollar Index has itself lost 9% in 2017.

USD/PHP rose (the peso weakened) on the day by 0.5% to 51.42, but Wednesday morning’s even weaker exchange rate of 51.60 puts the currency within a whisker of an eleven-year low. A break of August’s high of 51.66 is all that’s needed to achieve this depressing feat.

Singapore Dollar

USD/SGD’s fall to 1.3551 marked Singapore dollar strength of 0.6%.

Singapore dollar traders were left disappointed in September when USD/SGD failed to take out major support at 1.3350. That now has to be the minimum target for Singapore dollar bulls, with minor resistance at 1.37.

Friday sees the release of preliminary data for Singapore GDP growth. Singapore experiences significant volatility in its quarterly GDP numbers – these have swung from expansion to contraction for much of the past two years – so traders will focus most on annualized growth. On that basis, the economy of Asia’s “Lion city” is expected to have grown in the year to September by 3.8%, from 2.8% three months ago.

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