Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

In this week’s Alpha Bites, we recommend going long the Indonesian rupiah (IDR) against the Singapore dollar (SGD) in a beta-neutral ratio. SGD NEER has appreciated close to its strongest level in a year ahead of the MAS policy meeting where we do no expect tightening yet. Meanwhile, IDR has been hit by uncertainty due to potential changes to the central bank’s mandate. However, with real rates among the highest in the world, we expect flows to stay supportive in Indonesia.

In this week’s Alpha Bites, we recommend going long the Indonesian rupiah (IDR) against the Singapore dollar (SGD) in a beta-neutral ratio. SGD NEER has appreciated close to its strongest level in a year ahead of the MAS policy meeting where we do no expect tightening yet. Meanwhile, IDR has been hit by uncertainty due to potential changes to the central bank’s mandate. However, with real rates among the highest in the world, we expect flows to stay supportive in Indonesia.

Alpha Bites: Long Indonesia Rupiah (IDR) Vs Short Singapore Dollar (SGD)

Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

We estimate that the USD-value of central bank FX reserves – adjusted for currency-valuation effects – in China, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand rose by about $342bn (1.5% of GDP) between end-March 2020 and end-February 2021 (see <a href="https://www.smartkarma.com/insights/non-japan-asia-neers-and-fx-intervention" target="_blank" rel="noopener">Non-Japan Asia: NEERs and FX intervention</a>, 26th March 2021). The increase, which ranged from 0.3% of GDP in China to nearly 28% of GDP in Singapore, was partly the result of central banks buying foreign currency in the FX market. At the very least NJA central banks’ FX intervention capped the pace of appreciation (CNY, KRW, IDR, THB and TWD) or contributed to (modest) NEER depreciation (INR, MYR, PHP), in our view.Of course the matrix of exchange rate policy AND balance of payment flows, and their underlying drivers, is key to past and future currency performance.In the past 12 months the MAS has kept the Singapore Dollar NEER within a very narrow range of about 1.2%, effectively neutralising Singapore’s significant current account surplus, to support the critical external sector and ultimately reflate the economy.However, the Singapore Dollar NEER’s recent rally and jump in Singapore CPI-inflation in February arguably complicate the currency’ near-term outlook. Along with consensus, we forecast that the MAS will leave the parameters – (zero) slope, width and central rate – of the Singapore Dollar NEER band unchanged at its forthcoming semi-annual policy meeting. We think the NEER could dip temporarily before rebounding.The People’s Bank of China has allowed large external trade surpluses and capital account inflows into China to push the Chinese Renminbi NEER to a 270-week high.But the Renminbi is showing some signs of altitude sickness. The pace of monthly appreciation has halved recently and the PBoC has fixed USD/CNY higher in 6 of the past 7 sessions. Importantly CPI-inflation remains stuck at the bottom of its five-year ranges.In this context, we think the risk is biased towards the PBoC more actively negating FX inflows into China and towards modest Renminbi NEER downside near-term.

We estimate that the USD-value of central bank FX reserves – adjusted for currency-valuation effects – in China, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand rose by about $342bn (1.5% of GDP) between end-March 2020 and end-February 2021 (see Non-Japan Asia: NEERs and FX intervention, 26th March 2021). The increase, which ranged from 0.3% of GDP in China to nearly 28% of GDP in Singapore, was partly the result of central banks buying foreign currency in the FX market. At the very least NJA central banks’ FX intervention capped the pace of appreciation (CNY, KRW, IDR, THB and TWD) or contributed to (modest) NEER depreciation (INR, MYR, PHP), in our view.Of course the matrix of exchange rate policy AND balance of payment flows, and their underlying drivers, is key to past and future currency performance.In the past 12 months the MAS has kept the Singapore Dollar NEER within a very narrow range of about 1.2%, effectively neutralising Singapore’s significant current account surplus, to support the critical external sector and ultimately reflate the economy.However, the Singapore Dollar NEER’s recent rally and jump in Singapore CPI-inflation in February arguably complicate the currency’ near-term outlook. Along with consensus, we forecast that the MAS will leave the parameters – (zero) slope, width and central rate – of the Singapore Dollar NEER band unchanged at its forthcoming semi-annual policy meeting. We think the NEER could dip temporarily before rebounding.The People’s Bank of China has allowed large external trade surpluses and capital account inflows into China to push the Chinese Renminbi NEER to a 270-week high.But the Renminbi is showing some signs of altitude sickness. The pace of monthly appreciation has halved recently and the PBoC has fixed USD/CNY higher in 6 of the past 7 sessions. Importantly CPI-inflation remains stuck at the bottom of its five-year ranges.In this context, we think the risk is biased towards the PBoC more actively negating FX inflows into China and towards modest Renminbi NEER downside near-term.

Crunch Time for Singapore Dollar and Renminbi

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>A new currency regime in Asia?</li>
<li>Wildly inaccurate media reports wrongly suggest large-scale capital outflows from EM</li>
<li>Rather EM enjoying best forex reserve growth for a decade</li>
<li>
De facto Asian Currency Unit, a ‘Euro-like’ policy, allowing monetization</li>
<li>Loose US fiscal and monetary policies are more likely to spill-over into EM</li>
</ul>


A new currency regime in Asia?
Wildly inaccurate media reports wrongly suggest large-scale capital outflows from EM
Rather EM enjoying best forex reserve growth for a decade

De facto Asian Currency Unit, a ‘Euro-like’ policy, allowing monetization
Loose US fiscal and monetary policies are more likely to spill-over into EM


Could The New Asian ‘Euro’ Mean A Coming Decade of Outperformance From Emerging Markets?

Non-Japan Asian (NJA) central banks’ foreign currency (FX) reserves have gradually increased since end-March 2020, arguably the peak in global risk aversion.We estimate that the aggregate US Dollar-value of FX reserves in China, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand increased by about $514bn or 10% in the eleven months to end-February 2021 to about $5.66 trillion. This was just $122bn short of all the all-time high recorded in June-2014.Adjusting for currency-valuation effects – the appreciation of other major reserve currencies versus the US Dollar – we estimate that these NJA central banks’ FX reserves increased by about $342bn or 6.4%. As a percentage of GDP, this increase amounted to about 1.5% for NJA, ranging from only 0.3% in China to nearly 28% in Singapore. While realised investment gains on these central banks’ holdings and other official transactions may have inflated this increase in FX reserves, it was at least partly the result of central banks’ intervention in the FX market (i.e. buying foreign currency), in our view. Importantly, NJA central banks rightly attach greater importance to their currencies’ more relevant Nominal Effective Exchange Rates (NEERs), when setting their exchange rate and interest rate policies, than to their currency’s bilateral exchange rates, in our view.In the past 11 months NJA central banks have continued to show an ability and willingness to both limit daily FX volatility and influence their NEERs’ medium-term directionality.FX reserve accumulation has either capped the pace of appreciation (CNY, IDR, KRW, THB, TWD) or contributed to (albeit modest in most cases) NEER depreciation (INR, MYR, PHP) with NJA central banks seemingly intent on maintaining export competitiveness and limiting imported deflation. The Singapore Dollar NEER was unchanged over this period.Of course the past and future performance of individual currencies is conditioned by both the magnitude of central bank FX intervention AND current account and capital account flows (and the underlying factors behind these policies and FX flows) – the topic of Part Two of this FIRMS report.

Non-Japan Asian (NJA) central banks’ foreign currency (FX) reserves have gradually increased since end-March 2020, arguably the peak in global risk aversion.We estimate that the aggregate US Dollar-value of FX reserves in China, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand increased by about $514bn or 10% in the eleven months to end-February 2021 to about $5.66 trillion. This was just $122bn short of all the all-time high recorded in June-2014.Adjusting for currency-valuation effects – the appreciation of other major reserve currencies versus the US Dollar – we estimate that these NJA central banks’ FX reserves increased by about $342bn or 6.4%. As a percentage of GDP, this increase amounted to about 1.5% for NJA, ranging from only 0.3% in China to nearly 28% in Singapore. While realised investment gains on these central banks’ holdings and other official transactions may have inflated this increase in FX reserves, it was at least partly the result of central banks’ intervention in the FX market (i.e. buying foreign currency), in our view. Importantly, NJA central banks rightly attach greater importance to their currencies’ more relevant Nominal Effective Exchange Rates (NEERs), when setting their exchange rate and interest rate policies, than to their currency’s bilateral exchange rates, in our view.In the past 11 months NJA central banks have continued to show an ability and willingness to both limit daily FX volatility and influence their NEERs’ medium-term directionality.FX reserve accumulation has either capped the pace of appreciation (CNY, IDR, KRW, THB, TWD) or contributed to (albeit modest in most cases) NEER depreciation (INR, MYR, PHP) with NJA central banks seemingly intent on maintaining export competitiveness and limiting imported deflation. The Singapore Dollar NEER was unchanged over this period.Of course the past and future performance of individual currencies is conditioned by both the magnitude of central bank FX intervention AND current account and capital account flows (and the underlying factors behind these policies and FX flows) – the topic of Part Two of this FIRMS report. 

Non-Japan Asia: NEERs and FX Intervention

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

DXY rally call from sub 90 to 92 is in line and we are a tactical seller in the 92+ area for a pullback sequence amid an expected 10yr yield pullback. With the USD such a crowded short trade in a rising yield trajectory, we now find compelling evidence that the dollar may shift gears toward a more bullish stance after a pullback sequence. DXY weekly bull divergence and a price bottom pattern mirroring that in 2018 has our attention.The USD is a crowded short and would take little to spark a short covering reaction higher as witnessed in the USD/JPY above 107 (impulsive rise has legs). NZD above 0.74 shows risk of a macro top as does the AUD back near 0.81.

DXY rally call from sub 90 to 92 is in line and we are a tactical seller in the 92+ area for a pullback sequence amid an expected 10yr yield pullback. With the USD such a crowded short trade in a rising yield trajectory, we now find compelling evidence that the dollar may shift gears toward a more bullish stance after a pullback sequence. DXY weekly bull divergence and a price bottom pattern mirroring that in 2018 has our attention.The USD is a crowded short and would take little to spark a short covering reaction higher as witnessed in the USD/JPY above 107 (impulsive rise has legs). NZD above 0.74 shows risk of a macro top as does the AUD back near 0.81.

A Dollar Macro Low Would Surprise Crowded Shorts

Singapore

The Singapore dollar is the official currency of the Republic of Singapore. 

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SGD (USDSGD CURNCY)

Alpha Bites: Long Indonesia Rupiah (IDR) Vs Short Singapore Dollar (SGD)

In this week’s Alpha Bites, we recommend going long the Indonesian rupiah (IDR) against the Singapore dollar (SGD) in a beta-neutral ratio.

Gautam Jain, PhD, CFA

Crunch Time for Singapore Dollar and Renminbi

We forecast MAS will leave parameters of Singapore Dollar NEER band unchanged at its policy meeting. NEER could dip temporarily before rebounding....

Olivier Desbarres

Could The New Asian ‘Euro’ Mean A Coming Decade of Outperformance From Emerging Markets?

Asian cross-currency volatility is at its all-time low. A de facto Euro-like unit is forming. This could be hugely bullish for Emerging Markets

Michael J. Howell

Non-Japan Asia: NEERs and FX Intervention

Non-Japan Asian central banks have in past year intervened in FX market to cap FX volatility, protect export competitiveness and limit imported...

Olivier Desbarres

A Dollar Macro Low Would Surprise Crowded Shorts

USD is a crowded short trade in a rising yield trajectory, we now find compelling evidence that the dollar will shift gears (more bullish) after a...

Thomas Schroeder

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)