Forex - Indonesia Flows: USD/IDR; Indonesian growth won't reach 6% up to 2018: World Bank

Forex - Indonesia Flows: USD/IDR; Indonesian growth won't reach 6% up to 2018: World Bank.

23:37 (GMT) 05 Oct

[Forex Highlights]

Asia Overnight Highlights - 06 October 2016

Charu Chanana

ASIA OUTLOOK

Impressive US ISM non-manufacturing data was the main highlight, bolstering the dollar, while bond yields continued to be pressed higher. Stronger financials and oil supported equities.

Majors FX Highlights

The dollar index held on to its gains in the overnight session, seen supported above the 96.000 figure. Upbeat US services activity data (details below) and Fed Lacker's comment that inflation seems to be heating up putting a strong case for a rate hike later this year underpinned. All eyes are now on a Friday's NFP data. USD/JPY rallied further capturing the 103.00 resistance to a 1-month high of 103.67. Former Japanese Economy Minister Takenaka said Wednesday that BoJ will lower its -0.1% interest rate further to achieve the inflation target. GBP/USD slid to fresh 31-year lows of 1.2686 before bouncing back to trade around 1.2750, while EUR/GBP saw a 5-year high of 0.8842 before slipping back below 0.8800. BoE Deputy Governor Broadbent served up a large helping of 'wait and see' but said MPC is reluctant to go south of a zero bound, a softening in tone towards negative rates! PM May was critical of the negative impact of low rates. EUR/USD remained bid, seen on either side of 1.1220 following gains from a BBG report on ECB considering tapering before ending QE. A USD/CAD dip after a lower Canadian trade deficit was erased after the strong US data, reaching a high of 1.3232, but WTI trading at 6-week highs and threatening $50 following another unexpected draw saw USD/CAD gains fully erased. AUD/CAD is marginally lower. Aug building permits are due today. AUD and NZD remained firm, trading around 0.7620 and 0.7180 respectively.

Majors Data Highlights

US Sep's 154k ADP estimate for private sector payroll growth is on the low side of expectations and the slowest since Apr, but the slowdown illustrated is quite modest and job growth is still at a pace that is probably consistent with a Fed tightening later this year. Sep's ISM non-manufacturing index of 57.1 is an impressive bounce from the weak 51.4 in Aug where the weakness was never easy to explain, and now can be seen as erratic. Aug's trade deficit of $40.7bn is wider than Jul's $39.5bn but still maintains most of Jul's sharp narrowing, so net exports are looking positive in Q3. Today we expect weekly initial claims to remain low, rising only 1k to 255k.

The UK Services PMI has fallen to 52.6 in September from the 52.9 seen in August, but this still outperformed the consensus of 52.2. UK August industrial production is due today and is expected to post small falls of 0.1% m/m both overall and for manufacturing. That will leave the y/y measures lower at 1.1% (from 2.1%) and 0.3% (from 0.8%) respectively. August trade data is due at the same time and should show a narrower overall deficit of GBP3.5bn after GBP4.5bn in July.

The final Eurozone September services PMI has risen marginally to 52.2 from the flash estimate of 52.1 (Aug: 52.8). At the same time the manufacturing PMI survey was confirmed at 52.6 (Aug: 51.7). The composite PMI at was in-turn confirmed at the flash estimate of 52.6 (Aug: 52.9). German factory orders are worth watching, Thursday's release expected to show a 0.3% m/m increase as Brexit related uncertainty has subsided and the sector remains relatively healthy. The ECB will release the 'account' of its September policy meeting today.

Over in Asia, Australia retail sales surprised on the upside in August and inched higher by a healthy rate of 0.4% m/m and this is slightly higher than the market consensus of an increase of just 0.2% m/m. Focus will be on August trade balance, and expect the deficit to narrow to A$2320 million after coming in at A$2410 million in the previous month.

Emerging Asia FX Highlights

USD/Asians remained in broad consolidation overnight as the DXY index held onto its gains in the light of upbeat US services PMI data. China markets were away on holiday for National Day. USD/CNH was seen trading to a 3.5-week high of 6.7002 in the overnight trading session. USD/SGD meanwhile eased from the 4-month high of 1.3719 printed in the Asian hours on Wednesday, and prices remained capped at the key 1.37 handle in NY. USD/IDR 1M NDFs continued to trade in consolidation around 13050 levels in the NY hours. USD/INR 1M NDFs remained in broad consolidation around 66.8000 in the NY session.

Emerging Asia Data Highlights

Taiwan September consumer prices rise 0.33% y/y, while September WPI was -3.95% y/y. Philippine September consumer prices rise 2.3% y/y, which is the fastest since March 2015. Thursday seems to be a quiet day in Asia on the data front.

OVERNIGHT NEWS HIGHLIGHTS

- US Sep ISM Non-Manufacturing 57.1 from 51.4 vs Mkt 53

- US Sep ADP Employment Survey 154k from 175R vs Mkt 165

- US Aug Trade Balance USD -40.73 bn from -39.55R vs Mkt -39.2

- US Aug Factory Orders 0.2% m/m from 1.4R vs Mkt -0.2

- VIX index: 12.99 (-4.70%)

- Gold Spot: $1,268.86/oz (+0.16%)

- ICE Brent front contract: $51.86 (+$0.99)

- Nymex WTI front contract: btmm jn ($-0.13)

- Reuters/Jefferies Commodities Index: 188.78 (+0.79%)

- 10y UST: 1.702% (+2bp) (Asia morning)

- DJI: 18,281.03 (+0.62%); S&P: 2,159.73 (+0.43%); Nasdaq: 5,316.02 (+0.50%)

ASIA NEWS

- China: More yuan flucuation should be tolerated, Guan Tao, former official at China's State Administration of Foreign Exchange, says. - BBG

- India: Government will refrain from importing wheat in 2016-17 as state-run Food Corp. has enough stockpiles to meet demand for welfare programs and sale in open market, according to Food Minister Ram Vilas Paswan. - BBG

CURRENCIES

- EUR was well wanted in the European morning in an overhang from Tuesday's rather vague/anonymous headline on BBG regarding tapering of QE by ECB. The sheen came off a bit later and EUR/USD dipped to a low of 1.1187 after a stronger US ISM non-manufacturing index but the reaction to the data was eventually fully reversed.

- USD/JPY saw reputed strong resistance at 103.00 gave way in the European morning. A slight disappointment on the ADP data saw a brief dip back onto 102 handle that was erased ahead of the ISM non-manufacturing report. Strong data there sent US/JPY up to 103.60, and still higher traded late on.

- GBP/USD posted a new 31 year low of 1.2685 before a bounce back to a high of 1.2771 while EUR/GBP saw a 5 year high of .8842 before dipping back below .8800. UK PMI services showed a modest beat at 52.6 against expected 52.0 but Cable didn't even indulge in a token bounce. BoE Deputy Governor Broadbent served up a large helping of 'wait and see' but said MPC is reluctant to go south of a zero bound, a softening in tone towards negative rates! PM May was critical of the negative impact of low rates.

BONDS

Early selling hit initial targets, seeing some intraday profit-taking, but that gave way to further weakness after the big upside surge back in the NM ISM. Yields pressed higher across the curve, with 5s testing the Sep high. 2s +2.0bps @ 0.84%, 5s +2.8bps @ 1.25%, 10s +2.8bps @ 1.71%, 30s +2.6bps @ 2.44%.

- Agency Spreads: Freddie/Fannie 5s -1.9/-0.2 bps, 10s 0.0/+0.5 bps.

- Swap Spreads: 2s -0.01bps, 5s -0.50bps, 10s -0.50bps.

EQUITIES

With European banks +2.5% and higher yields supportive, financials boosted US bourses on Wednesday. Higher oil also helped energy. S&P nearer the recent range tops as the mkt so far shrugs off any fresh taper tantrums. The S&P closed +0.43%.

ASIA CURRENCIES

USD/CNY: 1Y NDFs traded quietly on either side of 6.8550 in the NY session, slightly bid up from the lows of 6.8380 seen in Asian hours on Wednesday. Onshore markets remain closed this week for National Day. A firm break of 6.7000 in onshore spot might still have to wait, possibly till after NFP data in early October.

USD/CNH: With onshore traders away on holiday, authorities have been relatively less vigilant and pair was seen trading to a 3.5-week high of 6.7002 in the overnight trading session. A firm break of 6.7000 is only likely to come about should NFP numbers surprise on the upside (by a lot) on Friday.

USD/SGD: Following a 4-month high of 1.3719 printed in the Asian hours on Wednesday, pair eased off slightly and prices remained capped at the key 1.37 handle in NY. We do not expect pair to deviate too far from the 1.37 handle ahead of the MAS policy decision due next week.

USD/IDR: 1M NDFs continued to trade in consolidation around 13050 levels in the NY hours. Spot USD/IDR gapped higher at the open and traded on either side of the key 13000 handle. Gains however remained capped at 13015 despite broad dollar strength and weaker regional currencies on news of early ECB tapering. With BI committed to maintain rupiah levels in-line with fundamentals, dips below 12900 should remain limited. Do not expect the pair to deviate too far from the key 13000 handle.

USD/INR: 1M NDFs remained in broad consolidation around 66.8000 in the NY session. Spot USD/ INR gapped higher to open at 66.6300 vs last close of 66.4600 following a surprise rate cut by RBI, as well as broad dollar gains due to hawkish comments from Fed Lacker. Pair was later seen trading on either side of 66.5500 before slipping to 66.5000 into the close. We expect downside to remain limited on broad USD gains. Focus remains on 66.3850 support ahead of the stronger 66.3250.

DATA RELEASED TODAY MORNING AND DUE TODAY

- 00:30 GMT - AU: Trade Balance (Aug) 4cast:-2320 AUD mn [Mkt: -2300, Prev: -2410]

- 12:30 GMT - US: Initial Claims (Oct 01) 4cast:255 k [Mkt: 256, Prev: 254]

- 12:30 GMT - CA: Building permits (Aug) [Mkt: 1, Prev: 0.8]

- 22:30 GMT - AU: AIG Construction PMI (Sep) [Prev: 46.6]

EVENTS & AUCTIONS

- US: IFF Annual Meeting (to 8th)

- CN: Market Holiday - National Day

- 03:35 GMT - JP: 3mth bills auction

03:45 GMT - JP: CPI-linked 10y bond auction

- 07:15 GMT - EU: ECB's Praet Speaks in New York

- 09:30 GMT - UK: 1.50% 22/07/47 bond auction - GBP 2.00 Bn (Act)