China supports Yuan with stronger-than-expected fixing

FX views: Most EM Asian currencies strengthened against the US dollar last week on the back of the dollar retreatment and dipping US Treasury yields, alongside foreign equity inflows. The KRW outperformed among regional currencies on its central bank’s hawkish stance, followed by MYR, PHP and SGD. The yuan’s gains lagged most Asian currencies last week on the country’s weaker-than-expected inflation trade data for June.

Week in review: India’s inflation came in higher than expected at 4.8%yoy, driven up by food prices, while industrial production estimates showed robust growth of 5%yoy, supported by infrastructure and capital goods.

Central bank monitor: Bank of Korea kept rates on hold in its latest policy meeting last week, but kept a hawkish tone. For the upcoming week, we will have China’s decision on the 1-year and 5-year loan prime rate. While there will likely be no change in this meeting, we continue to expect China to cut rates later in the year to support economic recovery.

Week ahead: This week, China will release a host of important economic data on Monday. After a weaker non-manufacturing PMI and a still below 50 manufacturing for June and a 0% June CPI inflation, it is likely to see a continued growth deceleration in this bundle of data. Meanwhile, trade numbers of Indonesia, South Korea will be released this week.

UST YIELDS DROPPED LAST WEEK AS MARKETS CONTINUED TO DIAL BACK HAWKISH EXPECTATIONS FOR THE FED

Sources: Bloomberg, MUFG GMR