Forex - Indonesia Preview: due 02-May - April inflation to hover near low end of the target range


 03:32 (GMT) 25 Apr

  [Economic Data]

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Indonesia Preview: due 02-May - April inflation to hover near low end of the target range (0101-KPTG-C01)

Indonesia is scheduled to report its April inflation on 2nd May, and we expect it to edge slightly higher to 2.55% y/y from 2.48% y/y in the preceding month. Structurally low food inflation still keeps headline inflation in check even as oil prices rose this month, and possible election spending supported household demand. The rupiah has been the strongest currency MTD in April against the USD, which also helps to keep imported inflationary pressures in check.

Inflation may see some upside pressures later in the year, but will still remain near the mid-point of the 2.5-4.5% target range for 2019. A softer Fed stance has removed the pressure from Bank Indonesia to hike further, but we expect the Bank to remain cautious about premature easing.


Forex - Asia Open - Overnight Highlights


 00:02 (GMT) 24 Apr

 [Forex Highlights]

Asia Overnight Highlights - 24 April 2019

ASIA OUTLOOK

Equities saw a fresh high buoyed by earnings, notably Twitter, and the USD was stronger, but despite this UST yields fell.

Majors FX Highlights

The USD strengthened across the board in the European afternoon/North American morning, perhaps helped by solid new home sales data, though most of the move came before the release. USD/CAD, looking towards Wednesday's BoC meeting rather than oil, moved above 1.3400. AUD/USD steady at .71 ahead of Australian CPI.
A Trump tweet threatening the EU over tariffs imposed on Harley Davidson added to the EUR's concerns after the weak data on Thursday, though a move in EUR/USD below 1.12 was brief. A dip in EUR/GBP was corrected with growing talk PM May might have to stand down sooner causing concern, cable touching a low of 1.2926.
USD/JPY was unable to sustain a brief move above 112.00, falling UST yields eventually outweighing strength in US equities.

Majors Data Highlights

Existing home sales data yesterday made signs of a revival in housing demand look quite modest. New home sales data today make it look quite strong, with a 4.5% increase to 692k, the highest since Nov 2017. This was the third straight monthly gain. Survey measures of housing demand have also improved in Q1, a less hawkish Fed helping. Back month revisions were modest.

Australia Q1 CPI will be the highlight on Wednesday in Asia. A weak print will further pressure the RBA to lower rates. There is limited scope for AUD weakness on rate cut bets with rate cut expectations for the August meeting still 50-50 and more than 1 but less than 2 rate cuts priced in this year. However, any surprise to the upside on the data will likely trigger a sharper reaction given AUD weakness prior to the release. We are expecting a faster rise in inflation than the market, 0.3% q/q vs. 0.2% q/q. If we are right, AUD/USD could jump to the upper end of the 0.71 handle, though it seems unlikely to break above key resistance above 0.72.
For the CAD, the focus is much more on interest rate spreads, especially with the BoC meeting on Wednesday. The BoC seems likely to be more dovish than the last time around, and this suggests some upside risks for USD/CAD even though the market probably expects something more dovish, mainly because the US curve is currently pricing more aggressive cuts from the Fed than the Canadian curve is for the BoC. This seems hard to justify given the relative performance of the economies and the weakness of the Canadian housing market, so we would see risks weighted towards a continuation of the USD/CAD strength this week.

Emerging Asia FX Highlights

USD/CNY: 1Y NDFs nudged higher to 6.7700 overnight on Tuesday, and further gains were limited. On Tuesday, PBoC fixed mid-point at 6.7082 vs. previous close of 6.7122.USD/SGD pushed higher overnight to an over 1-month high of 1.3585, but pared some gains thereafter to 1.3570. USD/IDR: 1M NDFs edged higher to 14196 overnight but erased some gains thereafter to 14180 at last look. USD/INR: 1M NDFs saw a range-bound overnight session, traded mostly between 70.0000-70.2000.

Emerging Asia Data Highlights

Singapore's headline inflation edged up slightly to 0.6% y/y in March from 0.5% y/y prior, whereas core inflation eased slightly to 1.4% y/y during the same period.

Wednesday will see the release of Malaysia's CPI for March. We expect it to remain in deflationary territory again with a print of -0.3% y/y vs. -0.4% y/y previously. Domestic fuel prices remain lower than last year despite some recent recovery.

OVERNIGHT NEWS HIGHLIGHTS

- US Mar new home sales +4.5% to 692k vs 649k exp.

- VIX index: 12.28 (-1.13%)

- Gold Spot: $1,271.61/oz (-0.07%)

- ICE Brent front contract: $74.51 (+$0.47)

- Nymex WTI front contract: $66.03 ($-0.27)

- Reuters/Jefferies Commodities Index: 187.58 (-0.18%)

- 10y UST: 2.565% (-2bp) (Asia morning)

- DJI: 26,656.39 (+0.55%); S&P: 2,933.68 (+0.88%); Nasdaq: 8,120.82 (+1.32%)

ASIA NEWS

China: PBOC Denies Rumours of Targeted Reserve Cut for Rural Banks. - BBG

Indonesia: Bank Indonesia's Monetary Policy to Focus on Stabilizing Economy. - BBG

India: India's RBI Switches to Bond Purchases After Forex Swap Success. - BBG

CURRENCIES

The USD strengthened across the board in the European afternoon/North American morning, perhaps helped by solid new home sales data, though most of the move came before the release. USD/CAD, looking towards Wednesday's BoC meeting rather than oil, moved above 1.3440. AUD/USD slipped below .71 ahead of Australian CPI, though AUD/CAD found buyers below .95.

A Trump tweet threatening the EU over tariffs imposed on Harley Davidson added to the EUR's concerns after the weak data on Thursday, though a move in EUR/USD below 1.12 was brief. A dip in EUR/GBP was corrected with growing talk PM May might have to stand down sooner causing concern, cable touching a low of 1.2926.

USD/JPY was unable to sustain a brief move above 112.00, falling UST yields eventually outweighing strength in US equities.

There was little news of real note in Europe. ECB council member Benoit Coeure admitted the slowdown in Germany had been stronger than expected, but still expects an H2 Eurozone recovery if there are solutions to the trade conflict. He didn't see any monetary policy reason for tiered interest rates.

EUR/CHF showed the most significant move in the morning, breaking to new highs for the year though much of the move was later reversed. While there was no obvious trigger, low FX volatility may have increased the demand for carry and led to more use of the CHF as a funding currency. The SEK was also weak, though this may relate to the Riksbank meeting this week and the strength of oil increasing long NOK/SEK positioning.

BONDS

USTs proved well bid from the short end into 2yr supply, which saw a respectable reception. Better Eurodollar performance, particularly call option structures, well noted as helping to spill over into the short end lift, followed up by buying in the belly and 10yr option demand. Action seemed flows / hedging driven more than anything. Indeed, mini rally comes in the face of new home sales data that was quite 'bearish' by adding to evidence of a housing recovery. 2s -2.3bps @ 2.36%, 5s -2.7bps @ 2.36%, 10s -2.0bps @ 2.57%, 30s -1.1bps @ 2.98%.

Agency Spreads: Freddie/Fannie 5s -0.4/+0.6 bps, 10s -0.2/-0.5 bps.

Swap Spreads: 2s -0.11bps, 5s -0.10bps, 10s -0.36bps.

EQUITIES

The S&P touched a fresh all-time high, with earnings data giving support, most notably from Twitter. While the NASDAQ outperformed, it was the recently struggling health care sector that led the S&P's gains

ASIA CURRENCIES

USD/CNY: 1Y NDFs nudged higher to 6.7700 overnight on Tuesday, and further gains were limited. On Tuesday, PBoC fixed mid-point at 6.7082 vs. previous close of 6.7122. Onshore spot extended its uptrend during late Asian hours on Tuesday, but still remained shy from 6.7300 handle.

USD/CNH: pair traded with a slight upside bias overnight, and tested the 6.7300 handle. Further gains were capped, and pair was last seen at 6.7280. We expect pair to eye the 6.7300 handle. If broken, will turn our attention to the 6.7500 resistance next.

USD/SGD pushed higher overnight to an over 1-month high of 1.3585, but pared some gains thereafter to 1.3570. Eyes on 1.3581 resistance, a firm break of that resistance will signal further upside momentum. On the data front, Friday will see the release of Singapore's Q1 unemployment rate and March industrial production.

USD/IDR: 1M NDFs edged higher to 14196 overnight but erased some gains thereafter to 14180 at last look. The onshore spot traded horizontally on Tuesday. Range was between 14075 and 14086 until last look, as markets awaited the Bank Indonesia decision due on Thursday. We expect the bank to remain cautious as final election counts are still due, although risk of rate cuts in H2 is increasing. We expect 13890 support to stand firm for now unless a Jokowi victory is confirmed, and risk of moves towards 14100 will increase if BI turns dovish.

USD/INR: 1M NDFs saw a range-bound overnight session, traded mostly between 70.0000-70.2000. Onshore spot pared some earlier gains during late Asian hours, and was last seen at 69.6000. Risk of break to the 70 handle has arisen due to oil price gains amid the election uncertainties, although we do not see much room above that as RBI is dovish.

DATA RELEASES DUE TODAY

- 01:00 GMT - AU: Internet Skilled Vacancies (Mar) [Prev: -0.9]

- 01:30 GMT - AU: CPI (Q1) [Prev: 1.8]

- 04:00 GMT - JP: Leading Indicator (Feb F) 4cast: index (Mkt: Prev: 97.4)

- 04:00 GMT - MY: CPI (Mar) 4cast: -0.3% y/y (Mkt: 0.3 Prev: -0.4)

- 08:30 GMT - UK: Public Borrowing (PSNB ex banks) (Mar) 4cast: GBP bn (Mkt: 0.4 Prev: 0.2)

- 08:30 GMT - UK: Public Finances (PSNCR) (Mar) 4cast: GBP bn (Mkt: Prev: 0.6)

- 14:00 GMT - CA: BoC Rate (43579) 4cast: 1.75% (Mkt: 1.75 Prev: 1.75)

- 23:00 GMT - KR: GDP (Q1 P) 4cast:2.4 %y/y [Mkt: 2.5, Prev: 3.1]

- 23:00 GMT - KR: GDP (sa) (Q1 P) [Mkt: 0.3, Prev: 1]

EVENTS & AUCTIONS

- 10:30 GMT - EU: ECB Long-Term Refinancing Operation Result

- 13:15 GMT - UK: Finance Minister Hammond speaks in London

- 14:00 GMT - CA: Bank of Canada announces key policy interest rate and Monetary Policy Report

- 15:15 GMT - CA: Bank of Canada's Poloz and Wilkins speak in Ottawa

- 16:30 GMT - US: 2yr Floating Rate Notes Auction

- 18:00 GMT - US: 5yr Notes Auction


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