Overnight currency markets remained almost unchanged, with the dollar index virtually unchanged at 93.03. With stock markets on fire, there was a distinct lack of interest by currency traders to load up on my pro-cyclical positioning among the G-10 and DM currencies. That suggests that for now, despite the wild optimism in equity markets, currency markets have reached a state of temporary equilibrium.
The return of the US president to the campaign trail, and Covid-19 and Brexit event risk in Europe could tip those scales. But currency markets are preferring patience for now. The US dollar has risen slightly in Asia after the China trade data and event risk from Malaysia and Indonesia.
Bank of Indonesia decision next
The Bank of Indonesia (BI) announces its latest interest rate decision on Tuesday. Indonesia has the unenviable record of having one of Asia’s worst-performing currencies, as well as an economy that has been hit hard by Covid-19. Given this toxic mix, the BI’s room to manoeuvre is small to non-existent. We expect that the BI will maintain rates at 4.0%, with USD/IDR trading at 14,750.00 today, which is uncomfortably close to BI’s line in the sand at 15,000.00. Only a fall by USD/IDR below 14,000.00 will give the BI room to make a modest rate cut, as maintaining international investor confidence takes priority over domestic needs.
In Malaysia, the political saga continues. Opposition leader Anwar Ibrahim is apparently scheduled to hold a press conference at around 1400 SGT today, after meeting the Malaysian King about forming a new government. USD/MYR has risen to 4.1530, and KLCI has eased into negative territory. Malaysian markets are likely to remain under pressure, although in the longer-term, fiscal constraints mean the government, whoever is in charge, has little room to indulge in hair-brained policies.
Overall, though, Asia appears content to let Europe take the lead when it arrives in the next few hours.