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South Asia Daily Outlook and Strategy - 04 Sep, 2008

Vishnu Varathan, [email protected], Ph: 65-6236-0396 Joanna Tan, [email protected], Ph: 65-6236-0385 Daniel Soh, [email protected], Ph: 65-6236-0394 Sue Ann Lee, [email protected], Ph: 65-6236-0391 Carl Rajoo: [email protected] Ph: 6236-0389 USD/PHP: Long positions leave room for profit-taking despite underlying bullish focus

The initial instinct in the USD/PHP was to gap higher; open at 46.65 gave way to more upside to 46.70 before central bank sales triggered unwinding in the pairing. Downside interest came easy as markets had stacked up long bets in previous sessions and were inclined to book profits. With the greenback on a bullish course however, dips below the 46.50 handle could not be sustained. Both the central bank and govt were seen talking up the PHP - subtly or otherwise. BSP said that the drop in the PHP has been "rather fast" and that BOP should remain in surplus position both this year and next. BSP added that it expects gross FX reserves to rise further next year from an estimated $37 bln for 2008; the govt meanwhile announced plans for some $2.5 bln in sovereign debt and development loans in 2009; 9% higher than this year. Plans to raise some $1.0 bln from the sale of stake in PNOC-EDC and Petron were also announced. The multiple legs of dollar rally were however overwhelming and the USD/PHP rallied to a strong close of 46.73, just off the 46.75 highs despite BSP seen tempering upside. In coming sessions, we expect that the USD/PHP will maintain its underlying bullish bias; bouts of profit-taking is still expected as the pairing looks for more upside to 47.05; dips likely to be supported below 46.30.

USD/INR: Markets to re-open with a bullish focus.

India markets were closed for a local holiday yesterday. The INR was spared the sharp depreciation seen in other regional currencies. While oil was softer and no doubt would have triggered some selling in the crude-sensitive USD/INR, the overarching influence was quite unequivocally the dollar move and INR would not have been expected to buck the regional trend. In coming sessions, we expect that the USD/INR will continue to be focused on levels north as the greenback appears to be poised for firm trades. Broad-based dollar dollar strength is seen lifting the USD/INR to highs above the 44.85 handle. A test on the 45-figure can be expected in the near-term though RBI offers are seen tempering upward momentum. Dips below 44.00 are not expected to be sustained with mood in regional pairings remaining somewhat bullish. We expect that bond yields will be lower on oil.

USD/IDR: BI expected to continue on its measured tightening path

The combination of the bullish greenback environment and risk aversion in the last session stoked upside momentum in the pairing as it was lifted above 9200 to 9220 highs. In addition, the big upmove in USD/KRW contributing to the upward momentum in regional pairings was also seen supporting USD/IDR. The central bank was noted stalling rallies at the 9220 resistance. The fact that oil prices have softened to below $110/bbl was generally ignored as the focus remained on the raging greenback. In the coming session, the pairing should see range plays in the 9170-9220 region with some support seen at 9192. The central bank will announce its latest policy rate today, widely expected to be a 25 bps hike to 9.25%, continuing on its measured tightening path since May this year. While we expect the central bank to hike rate by 25 bps to 9.25% in the coming monetary meet this week, odds of rate hikes should diminish as we move into the fourth quarter.

USD/SGD: On upward trajectory

The pairing continued on its upward trajectory in the last session as the euro plunged to fresh lows with talks of sovereigns adjusting euro reserves downwards. Regional factors also added to the upside bias for USD/SGD with USD/KRW spiking in a big way during earlier trades and regional bourses faltering under risk aversion. USD/SGD surged in early trades to 1.4380 highs breaking the 1.4355 resistance and was confined to the tight band of 1.4370-1.4400 for the rest of the session. Suspected aggressive selling by MAS late in the session helped stalled upward momentum and kept the pairing from venturing above 1.44. In the coming session, we expect that USD/SGD to continue eyeing movements in the euro. Prices are expected to be in the 1.4290-1.4450 range with USD/SGD bulls eyeing the 1.44-figure.

USD/THB: Consolidation as BoT aggressively checks strength

From highs of 34.52 on Tuesday, the USD/THB opened markedly lower yesterday after the pairing came under some strong selling pressure on Tuesday night from aggressive BoT intervention dragging the pairing to lows of 34.33. Nonetheless, weak politics and ongoing concerns about investor confidence in Thailand, both short term and long term, saw good demand from everywhere as the pairing opened just above the 34.40 support. Although all indicators were pointing to more upside, BoT continued to check strength yesterday, aggressively offering above 34.40 and saw the pairing range bound for most of the day in the 34.40-34.45 band. Absence of BoT towards close saw extension to 34.50. Political tensions still the major issue for Thailand going forward with little to no compromise shown from either side. Although positives coming from the army's determination not to use force as well as the fact that fears of electricity cut-offs from mass strikes did not materialize, still see politics weighing on the THB. Some focus on comments by BoT which expressed confidence in the country's strong economic fundamentals. Eye upside in the 34.33-34.50 range for now.

USD/MYR: Domestic woes not helping in bullish dollar climate

Bulls in the pairing were rampant in the previous session with USD/MYR surging to above the 3.44-figure. The firm dollar, huge spike in USD/KRW and regional mood of risk aversion all added to the domestic woes - politics, economics and monetary policy. After oscillating around the 3.44-figure, a sense that the pairing was overbought spurred foreign selling interests driving down to below the 3.44-handle. Intervention fears also help tempered upward momentum. The session ahead should see upside bias to remain in the pairing as the domestic woes are unlikely to turnabout so soon. The general trend in the greenback is also seen supporting USD/MYR as with other regional pairings. Range of 3.4240-3.4520 is expected with strong resistance seen at 3.4520. On the data front, July's trade performance is expected at 0401 GMT where easing in overseas sales is likely to come into play although high-priced commodities are still a support factor.

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