After having a quick review and emphasis on G10 currencies last week, this week I would like to shift the focus from G10 to Emerging Markets Asia as a lot of Asian central banks made monetary decisions during over the week. Asian central banks in general decided to give up and in fact dovish except Singapore. They accepted the fact that US dollar will continue to be the king and allow their currencies to depreciate against USD. Besides Japanese yen which Bank of Japan mentioned several times without action, Bank of Indonesia would be a good example which decided to let US dollar appreciate against IDR. Bank Indonesia left its policy rate unchanged at 3.5% in line with market consensus and said would quicken the normalization of monetary policy if signs of higher core inflation is detected. While Reserve Bank of India said it will stand Rupee stability, the local current INR itself reached its all time low at 78.43 last week. China also acted and market participants predicted that there would be further prime rate cuts or RRR cuts by the end of the year. Nonetheless, CNH performed well against USD last week as investors are hoping for relaxation of lockdown against covid. On the other hand, Monetary Authority of Singapore is very hawkish and dedicated to fight inflation by raising its depo and SORA rate aggressively. In fact depo and SORA rate for Singapore is currently higher than US fed fund rate despite the 75 basis point hike from the Feds. The forward looking and aggressiveness of MAS is very similar to SNB, and I expect SGD would continue appreciate against other currencies in the NEER basket.

Words are meaningless and actions are everything. Asian central banks obviously understand that skyrocketing commodity prices (at least fortunately oil dropped quite a bit already) and quick rate hike pace from the United States would only create outflow for bonds and equity markets. So far they did not really act to fight against the trend but mentioned the fact that they would be cautious and data dependent. To an extent I do not believe that they have a choice but to allow currency depreciation. Foreign investment outflow is another key factor which drives Asian currency weakness. India has lost around 20% of its foreign reserve from the top. Currency depreciation to an extent would help export for those countries as well. For example, Taiwan manufacturers did mention that TWD can depreciate more against USD in survey. Rate increments could create more burden for those Asian countries. I think central banks would act to curb volatility but would accept the fate that it would depreciate against USD.

I was wrong about oil price last week and a quick retracement of oil price occurred after I mentioned that oil price should stay high. Brent dropped to 113 USD per barrel compared to 124 USD per barrel a week ago. I still do not think inflation would come down quickly even when oil price drops. Rumours came out about negotiation between G7, Russia, and Ukraine that Ukraine would have to accept that the fact that further annexation would be done. This helped oil price to go down a bit further but I do not think that progress could be seen soon.

Equity rebounded over the week as well. It probably benefited G7 currencies against USD. The rebound is probably because of half year end and portfolio managers are rebalancing their portfolios and buy more equity. I still do not believe that equity bottomed from here. Would prefer to sell equity on rally using this half year end chance.